Foreign Affairs 95.4 (July-August 2016)

T H E T RU T H A B O U T T R A D E A N D J O B S
JULY/AUGUST 2016
JULY/AUGUST 2016 VOLUME 95 NUMBER 4
The
Struggle
for
Israel
THE STRUGGLE FOR ISRAEL

F O R E I G N A F F A I R S .C O M
Volume 95, Number 4

Ministering Justice
A Conversation With Ayelet Shaked

Anger and Hope
10
A Conversation With Tzipi Livni

The End of the Old Israel
16
How Netanyahu Has Transformed the Nation

Aluf Benn
Israel Among the Nations
28
How to Make the Most of Uncertain Times

Robert M. Danin
Israels Second-Class Citizens
37
Arabs in Israel and the Struggle for Equal Rights

Asad Ghanem
Israels Evolving Military
43
C O V E R : S T AV R O S P AV L I D E S
The IDF Adapts to New Threats

Amos Harel
Israel and the Post-American Middle East
51
Why the Status Quo Is Sustainable

Martin Kramer
July/August 2016
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ESSAYS
American Political Decay or Renewal?
58
The Meaning of the 2016 Election

Francis Fukuyama
The Case for Offshore Balancing
70
A Superior U.S. Grand Strategy

John J. Mearsheimer and Stephen M. Walt
The Truth About Trade
84
What Critics Get Wrong About the Global Economy

Douglas A. Irwin
NATOs Next Act
96
How to Handle Russia and Other Threats

Philip M. Breedlove
Germanys New Global Role
106
Berlin Steps Up
Frank-Walter Steinmeier
The Future of U.S.-Saudi Relations
114
The Kingdom and the Power

F. Gregory Gause III
The Truth About American Unemployment
127
How to Grow the Countrys Labor Force

Jason Furman
ON FOREIGNAFFAIRS.COM
Stathis Kalyvas on
Greeces next bailout
battle.
Eric Li on watching
American democracy in
China.
Marina Ottaway on
the Sykes-Picot Agreement at 100.
July/August 2016
SHED SOME LIGHT

ON FUTURE GROWTH
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DEVELOPMENT PRACTICE
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Human Work in the Robotic Future
139
Policy for the Age of Automation

Andrew McAfee and Erik Brynjolfsson
Democracy in Decline
151
How Washington Can Reverse the Tide

Larry Diamond
The Innovative Finance Revolution
161
Private Capital for the Public Good

Georgia Levenson Keohane and Saadia Madsbjerg
REVIEWS & RESPONSES

Capitalism in Crisis
172
What Went Wrong and What Comes Next

Mark Blyth
The Many Africas
180
Beyond Continental Caricatures

Ian H. Solomon
Having It All
187
A History of Global Consumption

Victoria de Grazia
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Volume 1, Number 1 September 1922
July/August 2016
July/August 2016 Volume 95, Number 4

Published by the Council on Foreign Relations
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CONTRIBUTORS
The political scientist ASAD GHANEM has spent most of his
academic career at the University of Haifa, in perhaps the
most ethnically integrated major city in Israel. Ghanems
scholarship centers on ethnic politics in divided societies,
especially Arab-Jewish relations in Israel. He has established
himself as a prominent advocate for Israels Arab community
and was a co-author of a major manifesto on the political
future of that community published in 2006 by a group of
leading activists and intellectuals. In Israels Second-Class
Citizens (page 37), Ghanem outlines the challenges facing
Arab Israelis and charts a path forward.
spent the final years of the Cold War as
a young U.S. Air Force officer in West Germany. Over the
quarter century that followed, he rose through the ranks,
capping a glittering career by becoming the commander
of U.S. European Command and supreme allied
commander of NATO for Europepositions he held
from 2013 through May of this year. In NATOs Next
Act (page 96), Breedlove makes the case for why a
resurgent Russia requires a strong response from the
Western alliance.
PHILIP BREEDLOVE
Over the past two decades, FRANK-WALTER STEINMEIER has

served in many of the most important roles in the German
government. Under Chancellor Gerhard Schrder, Steinmeier oversaw Germanys intelligence services and then
helped push through Schrders economic reforms while
serving as his chief of staff. When Angela Merkel became
chancellor in 2005, she chose Steinmeier as her first foreign
minister. After a stint as leader of the Social Democrats in
opposition, Steinmeier returned as foreign minister in 2013.
In Germanys New Global Role (page 106), he explains how
his country sees its growing presence on the world stage.
Educated at Smith College, the University of Florence,
and Columbia University, VICTORIA DE GRAZIA joined
Columbias history department in 1994. Her scholarship
has included topics as varied as gender and Italian fascism,
and her most recent book, the much-heralded Irresistible
Empire, investigates how U.S. consumer-oriented capitalism
spread throughout Europe. In Having It All (page 187),
de Grazia reviews Frank Trentmanns pioneering history of
consumption from the fifteenth century to the present.
ts common knowledge that the

Middle East is in turmoil these days
and that there are major tensions
between the United States and one of its
crucial allies in the region, Israel. Less
commonly understood are the profound
ways in which Israel itself is changing.
In important respects, the country
no longer resembles the image many
Westerners still picturethe liberal
Zionist state of David Ben-Gurion,
Abba Eban, Golda Meir, and Yitzhak
Rabin. The socialist Ashkenazi elite
that used to dominate Israels politics
has long since fractured and faded away.
Sephardic Jews, Soviet immigrants,
settlers, the religious right, secular
Jews, and Arab Israelis now vie for influence. In foreign policy, meanwhile, what
Israel stands for, and who it stands
with, is also in play.
To scout this new landscape, weve
turned to some of Israels leading politicians and observers. What emerges is
a picture of a country enjoying a rare
moment of relative peace with most
of its neighbors, even as it experiences
intensifying conflicts at home.
Leading off the package are interviews
with two of Israels most powerful
women: Ayelet Shaked, the current justice
minister, and Tzipi Livni, a former justice
minister and former foreign minister.
Their contrasting visions starkly illuminate the countrys current political divide.
Next, Aluf Benn, editor in chief of
Haaretz, describes Israels transformation through the story of Prime Minister
Benjamin Netanyahus long career. A
moderate when circumstances required
it, Netanyahu now leads the most rightwing government in Israels history,
which Benn argues is allowing Netanyahu
to realize his long-held dream: replacing
Israels old moderate and secular elite
with a new hard-line and religious one.
Robert Danin, an American diplomatic veteran of the now-moribund
peace process, examines the new threats
and often overlooked new opportunities
facing Israels foreign-policy makers.
Asad Ghanem of the University of
Haifa explores the plight of Israels
Arab citizens, who are enjoying unprecedented material gains even as they face
unprecedented threats to their political
rights. And Amos Harel, one of Israels
leading defense analysts, describes the
challenges facing the countrys vaunted
military, including the recent wave of
lone wolf knife attacks.
Finally, Martin Kramer of Shalem
College offers a vigorous dissent, noting
that in many respects, Israel is better
off today than ever before. What has
changed, in his view, is less Israel
than the attitudes of others, including
Washingtonwhose fecklessness and
withdrawal from the Middle East represent a real but manageable problem for
the Jewish state.
Israelis disagreeing with one another is
hardly new. But the bitterness of todays
fights underscores the depth of the
changes and choices facing the country.
Jonathan Tepperman, Managing Editor
Israelat least the largely

secular and progressive
version of Israel that once
captured the worlds
imaginationis over.
Aluf Benn
A Conversation With Ayelet Shaked 2

10
S T AV R O S P AV L I D E S

Aluf Benn
16

Robert M. Danin
28

Asad Ghanem
37

Amos Harel
43
Israel and the Post-American

Middle East
Martin Kramer
51
Return to Table of Contents
Ministering
Justice
A Conversation With
Ayelet Shaked
yelet Shaked is a relative

newcomer to Israeli politics.
Shaked, 40, served as Benjamin
Netanyahus office manager before
breaking with the prime minister and
joining Naftali Bennetts Jewish Home
party in 2012 and then winning election
to the Knesset in 2013. Following the
2015 election, Shaked was named Israels
minister of justice. Since then, she has
courted controversy with a number of
moves that critics call undemocratic,
such as promoting a bill that would
highlight which nongovernmental organizations (NGOs) get a majority of their
funding from foreign governments.
Shaked, who worked as a software engineer before entering politics, recently
spoke to Foreign Affairs managing editor,
Jonathan Tepperman, in Tel Aviv.
Youve been justice minister for a year
now. Which accomplishments you are
most proud of?
This interview has been edited and condensed.
F O R E I G N A F FA I R S
What kind of tools?
For example, it allows them, in specific

circumstances, to prohibit a suspect from
seeing a lawyer for 21 days. Things
like that.
Whats it like to be a leader of the Jewish
Homea political party known as the
main voice for religious settlersas a
secular woman and Tel Aviv resident?
The fact that I was elected to my post

in an open party primary shows that
Jewish Home voters are very open and
very liberal. I see my party as a bridge
between the Orthodox and the secular.
We believe that we should all live
together and respect one another.
You currently serve under Prime Minister
Netanyahu. You started your career
working for him directly but then broke
with him in 2012 and left Likud. What
are the main differences today between
you and Netanyahu, you and Likud?
The main difference between the Jewish

Home and Likud, apart from religion and
ideology, is that we object to a Palestinian
state, while Likud, and the prime
minister, supported one.
To return to your earlier question,
Im also trying to promote Arab society
in Israel, by creating new courts in Arab
cities and appointing a woman as a qadi
[an Islamic judge, with jurisdiction over
family law] for the first time.
ILIA YE FIMOVICH / G ET TY IMAG ES
One is the nomination of judges. Ive

already nominated 100 judges [to fill vacant
posts], which is a lot. Also, we are doing
a lot of things to reform the legal system,
to alleviate court backlogs, to reform the
bankruptcy law. Im trying to find any
business regulations that I can relax.
The transparency bill is also important,
but it hasnt passed yet. And the terror
bill, which the Knesset has tried to pass for

more than five years without success, will
pass next month [in June]. Its also very
important; it gives the Shabak [Israels
internal security service, also known as
the Shin Bet] and the police new tools
to fight terror.
Niss as ipsunt eum, omniet

veliquatet eos res ut doler
omnihiliquis abora dem eos
aut labore
lorem
Shaked
in sipim.
Tel Aviv, February 2015
Ministering Justice
Are these reforms meant to address the
inequalities between Arab Israelis and
Jewish Israelis?
by funding specific NGOs that serve

their ideology.
Theres no inequality. According to the

law, everyone is equal. But of course,
we need to invest more in some Arab
towns. And the government just passed
a big plan to do so.
By some countries, do you mean the

United States and Europe?
So the problem is not one of legal

equality but one of resources?
Yes, sometimes. But the government is

now fixing that. And here in my ministry,
nine percent of employees are Arabs
or Druze.
To return to politics, there are rumors
that the prime minister is trying to
create a big new party of the right, which
would absorb all the smaller right-wing
parties. What do you think of that?
Its not something weve really talked

about. I dont think its realistic. But
wed never rule anything out.
Some critics, including U.S. Ambassador
Dan Shapiro, have criticized the NGO
transparency bill as an attempt to muzzle
dissent. Why is the bill necessary?
Why publicly identify those NGOs that
get more than half of their support from
foreign governments?
The amount of attention this bill is

getting is absurd. There are so many
other important things that we are
working on, yet for some reason, this
bill gets so much attention. Its just a
transparency bill. If an NGO gets more
than half of its money from a foreign
government, its the right of the
citizens of Israel to know that. Why?
Because some countries have found a
way to interfere in the internal affairs
of Israelnot through diplomacy but
4
Mainly Europe. And by the way, its not

that [such funding] wont be allowed. Its
allowed in a democracy. But I think that
the public has the right to know about it.
Critics say that the real point of the law
is to shame these organizations by
making their members wear special
badges in the Knesset and by imposing
a public label that would damage these
groups legitimacy.
First of all, the badges arent part of

the law. But by the way, every lobbyist
in the Knesset needs to wear a badge.
So even if the badges were in the law,
it wouldnt be bad.
Second, its not about shaming. Its
about the right to know. Thats all.
Do you feel that foreign governments
should not be funding NGOs in Israel?
I think that foreign governments should

not fund political NGOs in Israel. I dont
think that the U.S. administration would
like it if Israel, for example, were to fund
an NGO in the United States that sued
American soldiers for their service
in Afghanistan.
Do you see the NGOs that would be
targeted by the law, such as Breaking
the Silence, as foreign agents or threats
to Israel?
They are not threatening Israel. Our

democracy is very strong; we can handle
them. But I think they are doing damage
to Israel outside the country, by spreading
a lot of lies and distorting the picture.
Sometimes if you only tell half a truth,
its a lie. They take one specific case and

generalize it, depict it as if it shows the
way all soldiers behave. Theyre doing it
on university campuses in the United
States. Its causing damage to Israel.
Would the legislation also affect groups
on the right?
I havent checked which NGOs would be

affected by the law.
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There will be four to five vacancies on the

Supreme Court next year, and youll get to
help nominate the replacements. Youve
been quite critical of the court in the past
and have tried to limit its ability to overrule decisions by the executive or the
Knesset. What role do you think a supreme
court should play in a democratic society?
A very important role, of course. The

courts job is to resolve disputes and
prevent the state from carrying out
actions that are illegal. I criticize the
court when it intervenes in matters of
policy, not in matters of law.
Do you have a problem in principle with
judicial review based on interpretation
of Israels Basic Laws?
No, I dont. But I think that [the court]

should use that power very, very rarely,
and only in very prominent cases where
theres been a violation of the lawnot
on questions of policy.
In the United States, the Supreme Court
uses what it calls the political question
doctrine to avoid getting involved in
questions it deems largely political.
Does a similar doctrine exist here?
Yes, but the reality is different. The U.S.

Supreme Court is also activist. But U.S.
Supreme Court justices are selected by
politicians. In Israel, its done by com-
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Rankings sourced by 2014 Thomson Reuters Journal Citation Reports and 2015 Google Scholar Metrics.
Ministering Justice
mittee. Im the head of the committee,

but there are three Supreme Court justices
on it as well, and we cant make a selection
without them. So the Supreme Court
judges have a lot of influence over the
selection of their replacements.
Would you like to change that?
There are a few things we cannot do in

this coalition. Im not going to bang my
head against a wall. But we do favor a law
that would give judges the formal power
to cancel a law. This power was never
given to them by law; they just took it.
But the law would also give the Knesset
the power to override the court, like
Parliament can in Canada, for example.
self-destruction reminds him of Germany

in the 1930s. How do you interpret such
criticisms?
You have to distinguish between the

two. First of all, Yair Golan [the IDFs
deputy chief of staff] retracted what he
said and said there is no room for such
a comparison.
Regarding [Freedom House], I want
to hear facts, not talk about atmosphere.
Israel is one of the strongest democracies in the world, with close to absolute
freedom of expression. You can see that
by looking at our social networks.
So you dont worry that any of the
measures youve mentioned could chill
freedom of expression here?
But in Canada, Parliament can only

overrule the court on constitutional
issues if it specifies that it is doing so
notwithstanding the courts opposition.
That acts as a check on Parliament.
No, and theyre not intended to.
What were talking about in Israel is

requiring a big majority, more than
60 percent of the Knesset, to do so.
I dont like this law, and I dont support

it. I dont think its necessary. I only voted
for it out of coalition discipline. But its
unnecessary. I think that Knesset members should say whatever they want. And
by the way, no one will use this law.
Arent you worried this could give rise

to a tyranny of the majority? Because
the purpose of an unelected judiciary
is to act as a check on the legislature
to prevent pure majoritarian rule.
I think that if you require a vote [to

overrule the court] to pass by 65 percent, then I dont see the Knesset using
this power very often. It will be a rare
occasion.
Freedom House recently downgraded
Israels standing due to what it claims are
new restrictions on the freedom of the
press. And last week, the deputy chief of
staff of the IDF said that the current
climate of intolerance, violence, and
What about the new bill that would allow

the suspension of Knesset members for
making anti-Zionist statements?
You recently proposed extending Israeli

civil law to settlements in the West Bank.
No. Dont believe all the things that you

read in the newspapers.
Today in Israel, when a law is passed
in the Knesset, the military authority in
Judea and Samaria has discretion over
how to apply it in the settlements. What
Ive proposed is that we set up a team
that would be manned both by the
Ministry of Justice and by the Ministry
of Defense to immediately translate new
laws into military regulations, rather than
letting it happen sporadically.
A Conversation With Ayelet Shaked

Youve made it clear in the past that you
favor annexation of large parts of the
West BankArea C, which is something
like 61 percent of the territory. So its not
surprising that some of your critics have
called this move a first step toward
annexation. Is there anything to that?
No. We arent talking about annexing

Judea and Samaria. The proposal has
been criticized because, like you, no one
understands what its saying. Politicians
on the left want to use it to score political points. No one has bothered to
understand what I really meant.
Speaking of annexation, what timeline
do you envisage?
Its not realistic today. What Im saying

is that the two-state solution will not
happen in the near future. The gaps
between the Palestinians and the Israelis
are much too big to bridge. Arafat, Abu
Mazen [Mahmoud Abbas], Olmert,
Barakthey all tried to do so many
times, and they failed. And the Gaza
withdrawal showed the Israeli public
that even though we withdrew down
to the last inch, we only got terror. You
know, Einstein defined insanity as when
you do the same thing over and over
again and expect different results.
Thats why today the majority of
Israelis dont think its realistic to establish
a Palestinian state. So its not that I
think we can annex Area C today, but
I think it is something that we need
to talk about, to put on the table.
You make it sound like your objection to
the two-state solution is more practical
than ideological.
Its just not realistic. All the countries

around us are collapsing, and there is a
huge battle in the Middle East between
the Shia and the Sunnis, and there are

terror organizations all over. Israel really
is like a villa in the jungle. And the
situation in Judea and Samaria for the
PalestiniansOK, its not perfect, but
its OK. They are living their lives; they
are selecting their leaders. The situation
could be far worse than it is now.
Second, I do believe in the historic right
of the Jewish people to the land of Israel.
So how do you see the relationship
with the Palestinians evolving? Arent
you worried that as conditions continue to deteriorate, their anger will
continue to grow?
I dont know if what youre saying is

true. Israel-Palestinian security coordination is strong. I think that Israel
and the international community need
to invest in the economy of the Palestinians. Maybe this will help to weaken
Hamas. I think if we are willing to
push for prosperity and to invest in a
real economy, and if the international
community would not just transfer
money but give the Palestinians independent energy and stronger industry,
it could help.
I also support building a port for
Gaza by building an island in the sea.
Tell me a bit more about the situation of
Arab Israelis. Do you feel that there are
major problems there that need to be
addressed?
I think that the government is now

doing the right things.
But a lot of damage was done by the last
government, which raised the threshold
of votes needed for a party to enter the
Knesset.
I supported leaving the situation as it

July/August 2016
Ministering Justice
was and not raising the threshold. That

was unnecessary. But the goal was not to
hurt the Arabs but rather to strengthen
the government.
Whatever the intentions were, that rule,
and the comments the prime minister
made during the last election about
Arabs being bused in droves to polling
stations, created a lot of ill feeling among
the Arab Israeli population. Are the
moves youre making now an attempt to
address that sense of alienation?
Many politicians said worse things than

the prime minister did during the election. But we are doing what were doing
because we think its the right thing to do.
How do you assess Israels security
today? Some people argue that Israel is
more secure than its ever been, because
for the first time in its history, war with
an organized Arab army is impossible.
But others argue that the region is more
dangerous than ever, because of the
fragility of Israels new Arab friends,
because of the Shiite-Sunni divide,
because of Iran, and because of ISIS.
Which view is correct?
Both of them are correct. You are right:

there is no threat that a big Arab army
will invade Israel. But on the other hand,
there are many other threats. First of
all, of course, is Iran and its bomb. The
agreement with Iran did two things. First,
they will have a bomb in ten years. They
will have a bomb. Its just a matter of a
decision. In ten years, if they decide to
have a bomb, theyll have one a few months
later. This is a huge threat to Israel.
The other bad thing about this
agreement is that it caused an arms race
in the Middle East. The United States
wants to give more arms to moderate
8
Sunni states. And part of the weapons

embargo on Iran will be removed in five
years. And [the Iranians] will now get a
lot of money, so they will arm themselves.
Another threat is the nonconventional
arms race. Saudi Arabia and Egypt now
see that Iran will have a bomb in ten years.
So they also want a bomb.
What about the broader international
situation? Do you worry that Israel is
becoming more isolated internationally,
because of the BDS [Boycott, Divestment,
and Sanctions] movement or because of
the friction between the leadership here
and that in Washington?
I believe that the U.S. administration

it doesnt matter which administration
will stand behind Israel in every bad
situation. The administration will understand that Israel is its ally and the only
democracy in the Middle East.
And I expect the American administration to fight the BDS movement on
university campuses.
The New York Times reported a few weeks
ago that tensions between Netanyahu
and President Obama were now delaying
the passage of a huge new aid bill the
two countries are negotiating.
I can only say that I hope they will

resolve it.
Do you ever worry that Israel is too
dependent on the United States?
The support of the United States is

very important. But Im not worried
that someday we might need to get
along without it. If that does happen,
we will succeed. But I dont see it
happening. I hope it wont.
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Anger and Hope
tional isolation, and the current government is steadily reducing civil liberties
and freedoms. Whats your version?
Its very clear that here in Israel there

are now not only two different states of
mind but also two different views about
what Israel needs and what Israel is. And
zipi Livni has been called the
your view of reality depends on which
most powerful woman in Israel of these two views of Israel you hold.
since Golda Meir. Born to a
prominent right-wing family, Livni
Does that mean Israel is now more
polarized than ever before?
spent several years working for the
Mossad, Israels foreign intelligence
Yes, yes. It started before the last
service, before entering politics. In
election, but the election crystallized the
the decades since, she has held eight
ideaquoting Netanyahuthat theres
different cabinet postsincluding
a gap between these two camps. He was
minister of justice and minister of
right then. And the things that he and
foreign affairsand undergone a
his government have done since then have
dramatic ideological evolution. First
made this gap grow wider. Those that
elected to the Knesset as a member
are not in the government feel that what
of Likud, in 2005 she joined Kadima,
is happening is completely against our
a new centrist party founded by then
understanding of what Israel is, what
Prime Minister Ariel Sharon. A staunch its values are, what Judaism is, what
democracy is.
supporter of the peace process, Livni
created her own party, Hatnua, in 2012
Is Israeli democracy in decline?
and then joined forces with Labor to
form the Zionist Union before the 2015 We are fighting to keep Israel a
democracynot just in terms of its
election. Now a leading member of
electoral system but also in terms of its
the opposition, Livni recently spoke
values. A lot of those on the other side
to Foreign Affairs managing editor,
see democracy only as a question of who
Jonathan Tepperman, in Tel Aviv.
is the majority. This is why they are trying
When you speaks to Israelis today,
to weaken the role of the Supreme Court.
youre apt to hear one of two competing
And this is why Netanyahu wants to
narratives. According to the first, things
control the press.
are better than ever: the economy is
In a democracy, you need to have a
thriving, most of Israels enemies are in
strong judicial system. You need freedisarray, and the current government
dom of speech, you need art, and you
reflects the will of the people.
need a free press. And all these things
The other narrative is the complete
are under threat right now. We in the
opposite: the region is more dangerous
opposition need to fight for these values.
than ever, Israel faces growing internaWe need to push the idea that democracy is a matter of values, and not just
This interview has been edited and condensed.
the rule of the majority.
A Conversation With
Tzipi Livni
U RI EL SINAI / G ET TY IMAG ES
10
Niss as ipsunt eum, omniet

veliquatet eos res ut doler
omnihiliquis abora dem eos
aut labore
sipim.
Livni
in Tellorem
Aviv,
January 2013
Anger and Hope

Do you think you can win this battle?
The right has controlled Israeli politics
for years now. The current government
is the most hard-line in Israels history.
Netanyahu seems to have very few
plausible challengers. Given all of that,
plus the countrys changing demographics, plus the publics frustration
with the peace process, plus the chaos
in the region, can the left or the center
really make a comeback?
The good thing about having a government like this one is that it makes everything very clear. The more bluntly they
speak, the easier it becomes to rally the
support of our own camp.
What we need to do now is to go to
our base and say, Listen, its now clear
what this government represents. If they
continue, they will take us to the point
of no return in the Israeli-Palestinian
conflict. They will change the nature
of Israeli democracy.
And is your own camp big enough to win
an election?
Its 50-50for now. You are right: Israel

is changing in terms of demographics.
But when [the government] says that the
majority rules, theyre wrong, because
Ayelet Shaked and Naftali Bennett
represent a minority in Israel. Their
ideology of a Greater Israel, and an Israel
thats more Jewish than it is democratic
thats a minority opinion here. What we
need to do is to find and speak to those
who are our natural partners.
But success also requires leadership
among the various parties in the center
and on the left, right? They must be
prepared to join forces.
It requires that voters understand that

in order to win, they need to work with
12
one leader, one party, and not spread

their votes all over. But as time passes,
peoples despair is growing. So it depends
on us. What Im trying to do right now
is to say, lets put on the table our basic
vision for the future of the state of
Israel. Not a specific platform, but a
general view of what needs to be done
about peace and security. And lets
speak about the nature of Israel as a
Jewish democratic state. Its not more
Jewish and less democratic, or more
democratic and less Jewish. And of course
we have to share our views about the
economy and society.
We need to put it all on the table,
not only for voters but also for the
heads of the different parties. They also
need to make a choice. Everybody
needs to take a side.
Ever since 1996, Netanyahu has said
openly that the way to create a permanent right-wing government in Israel is
to change the elitenot just by working
through politics but by creating new think
tanks, changing the media, changing
culture, all to replace the old secular
Ashkenazi elite with a new, more
Sephardic, religious, right-wing one.
So said the Ashkenazi leader.

Well, that is an irony. But is he succeeding?
For me, this is not a problem. I know

how [the right] feels, OK? I was there.
I was born to parents who were not
accepted by the establishment in the
days when the state of Israel was created.
And those Jews who came from Arab
states were also not accepted. They felt
that the establishment patronized
them. I can understand that feeling.
So giving more attention to Sephardim
and everythingits more than OK. Its
necessary. But what Likud is doing now

is just what was once done to them.
And its even more problematic than
that, because theyre trying to delegitimize those that criticize the government.
Netanyahu is using the resentment of
those who felt patronized by the old
elite to shut the mouths of those who
criticize him.
Is there a significant difference between
what he wants and what his allies, like
Bennett and Shaked and Regev, want?
For Netanyahu, its not about ideology.

Its about using the feelings of those who
were patronized in the past to say, OK,
now we are taking over, and you will
get our support.
For the others you mentioned, it is
about ideology. So they and Netanyahu
have different reasons for doing what
they do, but the outcome is the same.
For us, its about keeping Israel a
Jewish democratic state. The only way to
do that is by dividing the ancient land of
Israel into two different states. If we fail
to do so, or if we annex the territories,
we will face a clash between Israel as a
democracy and Israel as a Jewish state.
A vast majority of Israelis want to
keep Israel a democracy. If you asked
them, they might say that they are right
wing. But if the next question was,
would you support a two-state solution
with security? they would say yes.
A moment ago, you spoke about the
need to convince voters of the stakes
involved in choosing you instead of the
right. Yet as we speak, the leader of your
own coalition is in talks with the prime
minister about forming a national unity
government. What do you think of this?
My responsibility is to ask, how can I
serve my ideology and my voters? So

the question is, will joining the government allow us to implement our vision,
or serve Netanyahus vision?
To answer that, you have to ask, if
we joined the government, would it be
to create a true unity government or
just a broader coalition for Netanyahu?
Those are two different things. Unity
governments are based on an understanding among the major parties that
there are things we can agree on and
implement together. This is not what
Netanyahu is proposing. He is talking
about a broader coalition to help him
and his natural partners.
So Im against it, because it would
betray our voters and what I believe in.
Would you be prepared to leave the
party if it joined the government?
I have my own party.

Then would you leave the Zionist Union,
your coalition with Labor?
I hope that will not happen, but yes.

Whats the use of being in politics if it
means serving someone elses vision?
You asked me before about Netanyahu,
whether he thinks like the Jewish Home
or he thinks like us. Id answer by quoting
that old line: Tell me who your friends
are, and Ill tell you who you are.
Lets return to the peace process. Youve
spoken in the past about the dangers
of not doing anything to address the
situation. But given the disarray on the
Palestinian side, and the fact that Abu
Mazens [Mahmoud Abbas] days are
numbered, what can be done?
Israel needs to decide which road we

want to take; we need to decide on our
destination. If the destination is Greater
July/August 2016
13
Anger and Hope
Israel, it doesnt matter whether theres

a partner on the other side.
But if your destination is a secure
Israel that is Jewish and democratic,
then it cant be on the entire land. That
is our GPS setting. To get there, wed
prefer to have an agreement with the
Palestinians, because that is the way to
create a secure border, a demilitarized
Palestinian state, and an end to the
conflict. Because you cant end the
conflict without their consent.
And if we cannot end the conflict
tomorrow morning, lets at least start
moving toward our goal. That means
not doing things that take you in the
opposite direction. Netanyahu says his
destination is two states for two peoples.
But hes going in the other direction.
So what do you propose?
First, we need to win the trust of the

international community and the
Palestinians by saying this is where we
want to go. Not for you, not as a favor
to the United States. But because its
in our own interests.
Second, we would stop doing things
that serve the different vision for the
state of Israel.
Such as?
Stop expanding settlements, especially

those outside the fence that are not going
to be part of Israel. Then lets change
the atmosphere. Lets show were serious.
Lets give the Palestinians the right to
build in Area C. Lets see whether these
and other confidence-building measures
can create enough trust to relaunch
negotiations.
And then in the negotiations, we
need to find out what they really want.
Are they willing to end the conflict
14
and take steps that would serve their

interests as well?
And we need to work completely
differently with the international community. We have lost their trust by
speaking about two states but then
acting in ways that serve the vision of
a Greater Israel.
There are certain interests that
nobody in Israel would give up. Security:
a Palestinian state should be demilitarized. And the major settlement blocs
would become part of Israel.
Is there anyone to negotiate with on
the other side, or does this have to wait
until a new Palestinian leader replaces
Abu Mazen?
Id prefer to work with them directly.

But if they are not willing, lets start
working also with the international
community.
Do you see unilateral separation as a last
option, if necessary?
As long as it moves us toward a two-state

solution. We can act with the Palestinians or without the Palestinians. But
unilateralism would not bring us to the
end of the conflict.
How worried are you about Israels
growing isolation?
First, I want to make it clear that nothing

I suggested would be done to appease
the international community. Anything
we do has to be in our own interests.
But by not acting in our own interests,
we are affecting our relations with the
international community. And Israels
security is based on its relationship with
the U.S. Its not a question whether [the
Americans] like us or love us; its about
our security. And its not just about
money or weapons. They also give us

legitimacy to act against terror; they
have their veto on the Security Council.
Somebody recently said to me that
for the United States, Israel is becoming just another state. Thats not good
news. Netanyahu and others in the
government say that foreign attitudes
have nothing to do with what we do
but are based on who we are: the world
is anti-Semitic, so they will hate us no
matter what we do.
What I would say is that there is
anti-Semitism in the world, but not
everybody is anti-Semitic. And instead
of giving the anti-Semites an opportunity
to further isolate us, lets isolate them.
Lets build a wall between them and
those that are criticizing Israel because
of its policies or because they dont
understand us.
Do you worry that Israel is too dependent
on the United States?
The United States is the anchor. I also

believe that we should have better relations with Europe; we need to work
with everybody. But the United States
is the anchor.
Looking at all the recent changes in
Israels region, do you see other opportunities, as well as threats? For example,
relations with the Sunni monarchies
have never been better. And the Arab
Peace Initiative is still on the table. Is
that worth exploring?
understanding. We share the same view

of extreme Islamists, of terrorist organizations, of Iran.
But the glass ceiling thats
constraining relations between Israel
and the Arab Sunni world is the IsraeliPalestinian conflict.
So our strategy should be a dual
strategy: On the one hand, we should
act against the extremists, against Hamas.
But on the other, we need to help those
that are willing to work with us by
making all those gestures I mentioned
earlier. I have had discussions with Arab
League representatives about this. I asked,
Is this a take-it-or-leave-it deal? And
they said, Its negotiable. I said, Great.
Should I negotiate with you? And they
said, No. Negotiate with the Palestinians. So in the end, its all connected.
You sound surprisingly optimistic,
given whats happening here and in
your neighborhood.
Im not optimistic, but without hope,

you cant survive in this swamp called
politics.
I once heard a story about a Western
doctor working in Africa who worked
24/7 with victims of terrible atrocities.
Someone asked him, Where do you
find the strength to keep doing this night
and day? Two words, he said, anger
and hope.
I have both.
Yes. The original idea behind Israel

was to take the Jewish people out of a
ghetto and create a sovereign, independent state. So Israel shouldnt be a new
ghetto, a big ghetto in the Middle East.
There are opportunities here. We
and the Sunni Arab states share an
July/August 2016
15
The End of the

Old Israel
How Netanyahu Has
Transformed the Nation
Aluf Benn
sraelat least the largely secular

and progressive version of Israel
that once captured the worlds
imaginationis over. Although that
Israel was always in some ways a fantasy, the myth was at least grounded in
reality. Today that reality has changed,
and the country that has replaced it is
profoundly different from the one its
founders imagined almost 70 years ago.
Since the last elections, in March 2015,
a number of slow-moving trends have
accelerated dramatically. Should they
continue, they could soon render the
country unrecognizable.
Already, the transformation has
been dramatic. Israels current leaders
headed by Prime Minister Benjamin
Netanyahu, who metamorphosed after
the election from a risk-averse conservative
into a right-wing radicalsee democracy
as synonymous with unchecked majority
rule and have no patience for restraints
such as judicial review or the protection
of minorities. In their view, Israel is a
Jewish state and a democratic statein
that order. Only Jews should enjoy full
rights, while gentiles should be treated
with suspicion. Extreme as it sounds,
this belief is now widely held: a Pew
ALUF BENN is Editor in Chief of Haaretz.
Follow him on Twitter @alufbenn.
16
public opinion survey published in March

found that 79 percent of Jewish Israelis
supported preferential treatment for
Jewsa thinly veiled euphemism for
discrimination against non-Jews.
Meanwhile, the two-state solution
to the conflict with the Palestinians
has been taken off the table, and Israel
is steadily making its occupation of
East Jerusalem and the West Bank
permanent. Human rights groups and
dissidents who dare criticize the
occupation and expose its abuses are
denounced by officials, and the government has sought to pass new laws
restricting their activities. Arab-Jewish
relations within the country have hit a
low point, and Israels society is breaking down into its constituent tribes.
Netanyahu thrives on such tribalism,
which serves his lifelong goal of replacing
Israels traditional elite with one more
in tune with his philosophy. The origins
of all these changes predate the current
prime minister, however. To truly understand them, one must look much further
back in Israels history: to the countrys
founding, in 1948.
THE OLD MAN AND THE NEW JEW
Modern Israel was created by a group of

secular socialists led by David BenGurion, who would become the states
first prime minister. The Old Man,
as he was known, sought to create a
homeland for a new type of Jew: a
warrior-pioneer who would plow the
land with a gun on his back and then
read poetry around a bonfire when the
battle was won. (This new Jew was
mythologized, most memorably, by Paul
Newman in the film Exodus.) Although
a civilian, Ben-Gurion was a martial
leader. He oversaw the fledgling states
victory in its War of Independence

against Israels Arab neighbors and the
Palestinians, most of whom were then
exiled. And when the war was over,
the Old Man oversaw the creation of
the Israel Defense Forces (IDF), which
he designed to serve as (among other
things) the new countrys main tool for
turning its polyglot Jewish immigrants
into Hebrew-speaking citizens.
Ben-Gurion was a leftist but not a
liberal. Following independence, he put
Israels remaining Arab residents under
martial law (a condition that lasted until
1966) and expropriated much of their
land, which he gave to Jewish communities. His party, Mapai (the forerunner
of Labor), controlled the economy and
the distribution of jobs. Ben-Gurion and
his cohort were almost all Ashkenazi
(of eastern European origin), and they
discriminated against the Sephardic
Jews (known in Israel as the Mizrahim),
who came from Arab states such as
Iraq, Morocco, Tunisia, and Yemen.
Ben-Gurion also failed to appreciate the
power of religion, which he believed
would wither away when confronted
with secular modernity. He therefore
allowed the Orthodox to preserve their
educational autonomy under the new
statethereby ensuring and underwriting
the creation of future generations of
religious voters.
For all Ben-Gurions flaws, his
achievements were enormous and should
not be underestimated: he created one
of the most developed states in the
postcolonial world, with a world-class
military, including a nuclear deterrent,
and top scientific and technological
institutions. His reliance on the IDF as a
melting pot also worked well, effectively
assimilating great numbers of new
Israelis. This reliance on the military

along with its battlefield victories in
1948, 1956, and 1967helped cement
the centrality of the IDF in Israeli society.
To this day, serving in the militarys
more prestigious units is the surest way
to get ahead in the country. The army
has supplied many of the nations top
leaders, from Yitzhak Rabin and Ezer
Weizman to Ehud Barak and Ariel Sharon,
and every chief of staff or intelligence
head instantly becomes an unofficial
candidate for high office on retirement.
The first major challenge to BenGurions idea of Israel arrived on Yom
Kippur in 1973, when Egypt and Syria
launched a surprise attack that managed
to catch the IDF unawares. Although Israel
ultimately won the war, it suffered heavy
losses, and the massive intelligence
failure traumatized the nation. Like
the United Kingdom after World War I,
Israel emerged technically victorious
but shorn of its sense of invincibility.
Less than four years later,
Menachem Beginthe founder of
Israels right wingcapitalized on this
unhappiness and on Sephardic grievances
to hand Labor its first-ever defeat at
the polls. Taking power at the head of
a new coalition called Likud (Unity),
Begin forged an alliance with Israels
religious parties, which felt more at
home with a Sabbath-observing conservative. To sweeten the deal, his
government accelerated the building
of Jewish settlements in the West Bank
(which appealed to religious Zionists)
and offered numerous concessions to
the ultra-Orthodox, such as generous
educational subsidies.
Begin was a conservative and
nationalist. But the decades hed spent
in the opposition had taught him to
July/August 2016
17
Aluf Benn
respect dissent and debate. As prime

minister, therefore, he always defended
judicial independence, and he refrained
from purging Labor loyalists from the
top echelons of the civil service and the
IDF. As a consequence, his revolution,
important though it was, was only a
partial one. Under Begins leadership,
Israels old left-wing elite lost its cabinet
seats. But it preserved much of its
influence, holding on to top positions
in powerful institutions such as the
media and academia. And the Supreme
Court remained stocked with justices
who, while officially nonpartisan,
nevertheless represented a liberal
worldview of human and civil rights.
that could be managed but would never

be resolved. The Westwhich, in his
view, was anti-Semitic, indifferent, or
bothcouldnt be counted on to help,
and so Israels leaders were duty bound
to prevent a second Holocaust through
a combination of smart diplomacy and
military prowess. And they couldnt
afford to worry about what the rest of
the world thought of them. Indeed, one
of Netanyahus main domestic selling
points has always been his willingness
to stand up to established powers,
whether they take the form of the U.S.
president or the UN General Assembly
(where Netanyahu served as Israels
representative from 1984 to 1988 and
first caught his nations attention).
BIBIS BAPTISM
Netanyahu loves lecturing gentiles in
Although Likud has governed Israel for his perfect English, and much of the
most of the years since then, the lefts
Israeli public loves these performances.
ongoing control over many other facets He may go overboard at timesas
of life has given rise to a deep sense of
when, last October, he suggested that
resentment on the right. No one has
Adolf Hitler had gotten the idea to kill
felt that grievance more keenly than
Europes Jews from Amin al-Husseini,
Netanyahu, who long dreamed of finishing the grand mufti of Jerusalem during
Begins incomplete revolution. Bibi,
World War II. Historians of all stripes
as Netanyahu is known, first won the
scoffed at the claim, but many ordinary
premiership in 1996, but it would take
Israelis were indifferent to its inaccuracy.
him decades to accomplish his goal.
During his first term, Netanyahu
Netanyahus initial election came
connected his domestic and international
shortly after the assassination of Rabin. agendas by blaming the leftism of Israels
The years prior to Rabins death had been old elite for the countrys foreign policy
dominated by the Oslo peace process
mistakes. To prevent more missteps in
between Israel and the Palestine Libera- the future, he borrowed a page from the
tion Organization (PLO), and that same U.S. conservative playbook and vowed to
peace process would become the focus
fight the groupthink at Israels universities
of his successors first term as well.
and on its editorial boardsa way of
Netanyahu opposed Oslo from the
thinking that, he argued, had led the
very beginning. Then as now, he saw
country to Oslo. In a 1996 interview
Israel as a Jewish community besieged
with the Haaretz columnist Ari Shavit,
by hostile Arabs and Muslims who wanted Netanyahu complained about his deleto destroy it. He considered the Arabgitimization by the nomenklatura of the
Israeli conflict a perpetual fact of life
old regime, adding that the problem
18
Changing of the guard: Netanyahu at a memorial service for Ben-Gurion, November 2014
AMI R COH EN / REUTE RS
is that the intellectual structure of Israeli

society is unbalanced. He pledged to
create new, more conservative institutions
to rewrite the national narrative.
But Netanyahus political inexperience worked against him. His tenure was
rocked by controversy, from his reckless
provocations of the Palestinians and of
Jordan to a scandal caused by his wifes
mistreatment of household employees.
Israels old elites closed ranks, and, with
the support of the Clinton administration, they forced Netanyahu into another
deal with the Palestinian leader Yasir
Arafat. The 1998 Wye River memorandumthe last formal agreement that
Israel and the Palestinians have signed
to this daytriggered early elections in
May 1999, after several small, hard-right
parties abandoned Netanyahus coalition
in protest. Barak and the Labor Party
emerged victorious.
Both Barak, a decorated former head

of the IDF, and Sharon, who replaced
Netanyahu at the helm of Likud and
became prime minister himself in 2001,
represented a return to the Ben-Gurion
model of farmer turned soldier turned
statesman. Their ascent thus restored the
old orderat least temporarilyand made
Netanyahu seem like a historical fluke.
A MODERATE MASK
But Netanyahu saw things differently,

and he spent the next decade plotting
his return to power. Following Sharons
reelection in 2003, Netanyahu become
finance minister, although he resigned
on the eve of the August 2005 unilateral
pullout from Gaza. When Sharon created
a new centrist party, Kadima (Forward),
shortly after the withdrawal, Netanyahu
took over the remnants of Likud. But
he lost the next election, in March 2006,
July/August 2016
19
Aluf Benn
to Ehud Olmert, who had replaced the

ailing Sharon as head of Kadima.
Olmert had pledged to follow through
on his mentors vision by withdrawing
Israel from most of the West Bank.
But in July, his plans were disrupted
when he let Hezbollah draw him into
a pointless and badly managed war in
Lebanon. His subsequent effort to
negotiate a comprehensive peace deal
with the Palestinians, launched in
Annapolis, Maryland, in late 2007,
led nowhere. Meanwhile, Netanyahus
credibility and popularity were boosted
that same year when Hamas, well armed
with rockets, seized control of Gaza
just as hed predicted. So when Olmert
announced his resignation over corruption
charges in the summer of 2008 (he
ultimately went to jail earlier this year
on different charges), Netanyahu was
ready to pounce.
His revival was further aided by the
sudden appearance in 2007 of what
would become the most important of
what Netanyahu called independent
sources of thought. Israel Hayom (Israel
Today) is a free daily newspaper owned
by the American casino magnate
Sheldon Adelson, and ever since its
launch, it has provided Netanyahu with
a loud and supportive media megaphone.
By 2010, Israel Hayom had become the
countrys most-read weekday newspaper,
printing 275,000 copies a day. And its
front page has consistently read like
Bibis daily message: lauding his favorites, denouncing his rivals, boasting
about Israels achievements, and downplaying negative news.
With Olmert out of the picture,
Netanyahu returned to office on
March 31, 2009. Eager to prove that
he was no longer the scandal-plagued
20
firebrand whod been voted out of office

a decade before, however, and fearing
pressure from the new U.S. president,
Barack Obama, he once again was forced
to shelve his long-term plans for elite
replacement. Instead of undermining
his enemies, he shifted to the center,
recruiting several retired Likud liberals
to vouch for the new Bibi and join his
cabinet, and forging a coalition with
Labor under Barak, who stayed on as
defense minister (a job hed held under
Olmert). Together, Netanyahu and
Barak spent much of the next four years
working on an ultimately unrealized
plan to bomb Irans nuclear facilities.
In June 2009, ten days after Obamas
Cairo address, Netanyahu sought to
reinforce his new centrist credentials
by endorsing the idea of Palestinian
statehood in a speech. True to form,
however, the prime minister imposed a
condition: the Palestinians would first
have to recognize Israel as a Jewish
state. Mahmoud Abbas, the Palestinian
president, instantly rejected the idea.
But the move enhanced Netanyahus
moderate credentials anyway.
And it helped get Obama off his
backbut not before the U.S. president
convinced Netanyahu to accept a tenmonth freeze on new residential construction in the West Bank settlements.
The freeze was meaningless, however,
since it didnt change the facts on the
ground or facilitate serious peace talks.
And soon after it expired, Republicans
won control of the House of Representatives in the U.S. midterm election,
creating a firewall against any further
pressure from Washington. Obama
soon lost interest in the thankless peace
process. Although his rocky relationship
with Netanyahu led to many juicy
Oxford University Press, 2015
Oxford University Press/Hurst, 2016
Yale University Press, 2016
Cornell University Press, 2015
Forthcoming Books from CIRS

Arab Migrant Communities in the GCC
Edited by Zahra Babar
Transitional Justice in the Middle East
and North Africa
Edited by Chandra Sriram
Gateways to the World: Port Cities in the Persian Gulf

Edited by Mehran Kamrava
Inside the Islamic Republic: Social Change in
Post-Khomeini Iran
Edited by Mahmood Monshipouri
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CLASSES START
JANUARY AND JULY.
newspaper and magazine stories, it had

little effect on Israels internal politics,
since most Israelis also distrusted the
U.S. president, and still do; a global
poll released in December 2015 found
that Obama had a lower favorability
rating in Israel than almost anywhere
else, with only Russians, Palestinians,
and Pakistanis expressing greater
disapproval.
Any remaining pressure on Netanyahu
to pursue peace with the Palestinians
evaporated soon after the Arab Spring
erupted. Hosni Mubaraks regime in
Egypt collapsed, threatening a cornerstone
of Israels security strategy; Syria sank
into a bloody civil war; and a terrifying
new nemesis, the Islamic State (also
known as ISIS), appeared on the scene.
These events unexpectedly bolstered
Israels position in several ways: Russia
and the United States ultimately joined
forces to eliminate most of Syrias chemical
weapons, and the conservative governments of Jordan, Saudi Arabia, the United
Arab Emirates, and (after the 2013
counterrevolution) Egypt strengthened
their ties with Jerusalem (albeit unofficially
in most cases). But the regional carnage
and turmoil horrified Israeli voters,
who told themselves: if this is what
the Arabs are capable of doing to one
another, imagine what they would do
to us if we gave them the chance.
Nonetheless, peace and security
played an uncharacteristically minor
role in the next election, in January
2013. Instead, the race was dominated
by social issues, including the rapidly
rising costs of housing and food staples
in Israel. Such concerns helped usher
in a new class of freshman politicians,
who replaced old-timers such as Barak.
But none of them was able to overcome
the incumbents experience and savvy,

and after reengaging with his rightwing base and merging with another
conservative party led by former Foreign
Minister Avigdor Lieberman, Netanyahu
won the election.
In the summer of 2014, following
one last push for peace with Abbas
(this time led by U.S. Secretary of State
John Kerry), war broke out between
Israel and Hamas. The discovery of
dozens of tunnels dug by Hamas into
Egyptian and Israeli territory put
another big scare into the Israeli public
and prompted a prolonged ground
operationthe bloodiest conflict of
the Netanyahu era. During 50 days of
fighting, more than 2,000 Palestinians
and 72 Israelis, mostly soldiers, were
killed. Israels Jewish population overwhelmingly supported the war, but the
fighting caused communal tensions in
the country to explode. Thousands of
Arab Israeliswho identified with the
suffering in Gaza and were tired of
their own abuse by the police and their
increasing marginalization under
Netanyahuprotested against the war.
Hundreds were arrested, and other
Arabs employed in the public sector
were reportedly threatened with firing
after criticizing the conflict on Facebook.
THE NEW RIGHT
Around the same time, personal animosities within Netanyahus coalition

started to pull it apart. Netanyahu was
unable to prevent Israels parliament,
the Knesset, from electing Reuven
Rivlin, a longtime Likud rival, to the
largely symbolic presidency. And
several of the prime ministers erstwhile
allies, including Lieberman, endorsed a
bill that would have forced Israel Hayom
July/August 2016
21
Aluf Benn
to start charging its readers. (The bill

never made it past a preliminary hearing.)
In December, the government finally
collapsed, and the Knesset called an
early election.
Likud went into the 2015 race
trailing in the polls. The public was
angry with Netanyahu over a smalltime financial scandal involving his
wife and over the stalemated result
of the war with Hamas. The Zionist
Union, a new centrist coalition led by
Labors Isaac Herzog, seemed poised
to form the next government. But the
uncharismatic Labor leader proved no
match for his wilier, more experienced
adversary. Netanyahu tacked right
scoring an unprecedented invitation to
address the U.S. Congress (which he
used to denounce the nuclear deal the
Obama administration was negotiating
with Iran) and stealing votes from smaller
conservative parties by promising not to
allow a Palestinian state to be established
on his watch. Then, on election day, he
released a video in which he claimed that
Arab voters are heading to the polling
stations in droves. Left-wing NGOs are
bringing them in buses. The statement
wasnt true, but it effectively tapped into
Jewish voters anxiety and racism and won
Likud the election: Likud emerged with
30 seats; the Zionist Union earned 24.
In Israels fractious parliamentary
system, votes alone dont determine who
takes power, however; that gets decided
during the coalition-building process that
inevitably follows each election. In this
case, the electoral math left Netanyahu,
who was 31 seats short of a majority,
with two choices: he could form a
national unity coalition with Herzog
and the ultra-Orthodox, or he could
forge a narrow but ideologically
22
cohesive alliance with several smaller

center- and far-right parties.
Choosing Herzog would have
created a wider coalition and allowed
Netanyahu to show a more moderate
face to the world. But the prime minister,
who was sick of acting like a centrist,
picked the latter course instead. That
left him with a very narrow, one-seat
majority in the Knesset. But it also gave
him his first undiluted hard-right government since his 2009 comebackone
that would finally allow him to realize
his long-deferred dream of remaking
Israels establishment.
Although Netanyahu is both secular
and Ashkenazi, his new allies are mostly
Mizrahimlong ostracized from Israels
centers of power, even though they
represent a large segment of the Jewish
populationand religious Zionists, who
are known for their knitted yarmulkes, are
fiercely committed to (and often live in)
West Bank settlements, and have, in recent
years, come to hold many prominent
positions in the army, the security services,
and the civil service.
These groups are most vocally
represented by three members of the
current government: Likuds Miri Regev,
the minister of culture; Naftali Bennett,
the minister of education and head of
Habayit Hayehudi (Jewish Home), a
religious Zionist party that he built out of
the ashes of the old National Religious
Party; and Ayelet Shaked, Bennetts
longtime sidekick and now the minister
of justice. Regev is Sephardicher family
came to Israel from Moroccoand a
former brigadier general in the IDF,
where she served as chief spokesperson
during the Gaza pullout. Bennett, the
son of American immigrants, served in
the Israeli special forces and then made
a fortune as a high-tech entrepreneur.

He is both a model product of the
start-up nation and the epitome of
the religious, fiercely nationalist, prosettlement leader (although he himself
lives comfortably within the Green Line).
Shaked, meanwhile, was a computer
engineer before joining politics; despite
her membership in the Jewish Home,
she is neither religious nor a settler.
Both she and Bennett worked directly
for Netanyahu in Likud a decade ago,
when he was the opposition leader,
but they broke with him over personal
quarrels in 2008.
Like the prime minister, Regev,
Bennett, and Shaked are skilled, mediasavvy communicators. In keeping with
Israeli tradition, all three have complicated, frenemy relationships with
Netanyahu. Regev climbed the ranks
of Likud without the prime ministers
sponsorship, and Netanyahu has never
forgiven Bennett and Shaked for their
betrayals; the two are never invited to
join him at his residence or on his
plane. Yet so far, they have not let their
personal grievances block the pursuit
of their shared interests. Netanyahu
needs Bennett and Shaked to keep his
coalition afloat, and he needs Regev to
maintain his support among Sephardic
Israelis, an important Likud constituency. And there are no real ideological
differences among the four politicians.
Netanyahu is thus happy to let the others
lead the charge against the old guard
and to take the heat for it as well.
Since taking office last year, the
three ministers have readily obliged
him. Regevwho likes to rail against
what she calls the haughty left-wing
Ashkenazi elite and once proudly told
an interviewer that shed never read
Chekhov and didnt like classical music

has sought to give greater prominence to
Sephardic culture and to deprive less than
patriotic artists of government subsidies.
Bennetts ministry has rewritten public
school curricula to emphasize the countrys
Jewish character; it recently introduced a
new high school civics textbook that depicts
Israels military history through a religious
Zionist lens and sidelines the role of
its Arab minority. In December 2015,
Bennett even banned Borderlife, a novel
describing a romance between a young
Jewish Israeli woman and a Palestinian
man, from high school reading lists.
Shaked, for her part, has vowed to
reduce judicial interference in the work
of the executive and the Knesset by
appointing more conservative justices
to the Supreme Court next year, when
four to five seats (out of 15) will open
up. She has also made good use of her
position as head of the cabinet committee on legislation, which decides which
bills the executive will support in the
Knesset. The committee has recently
promoted several draft laws designed
to curb political expression. One, aimed
at non-Zionist Arab legislators, would
allow the Knesset to suspend a member
indefinitely for supporting terrorism,
rejecting Israels status as a Jewish state,
or inciting racism. Another, which Shaked
has personally championed, would shame
human rights groups by publicly identifying those that get more than half their
funding from foreign governments.
(So far, none of these bills, or even more
restrictive measures put forward by Likud
backbencherssuch as one that would
label left-wing nongovernmental organizations foreign agents and another that
would triple the jail sentence for flag
burninghas been passed.)
July/August 2016
23
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Meanwhile, Netanyahu is doing his

part as well. After last years election,
he insisted on holding on to the communications portfolio himself, giving
him the last word on any media-related
legislation. This move has given him
unprecedented leverage over Israels
television and telecommunications
networks, which have grown leery of
doing anything to alienate the prime
minister.
Many of the governments recent
actions, such as Regevs promotion of
Sephardic culture, seem designed to
address the traditional disenfranchisement of Israels Mizrahim and citizens
living in the countrys periphery
(that is, far from the central Tel Aviv
Jerusalem corridor). Other measures
are aimed at promoting social mobility.
Yet virtually all of them have had a clear
political goal as well: to reduce, if not
eliminate, the domestic opposition to
Israels occupation of the West Bank,
which Netanyahu and his allies want
to make permanent. By portraying the
shrinking peace camp and its supporters
as unpatriotic stooges of foreign antiSemites, the government hopes to
delegitimize them and build a consensus around its hard-right policies.
The strategy seems to be working.
One example: in a poll conducted last
December of Israeli Jews, 53 percent of
those surveyed supported outlawing
Breaking the Silence, a veterans group
that aims to expose the harsh realities
of the occupation by publishing wrenching testimonials of soldiers who have
served in the West Bank.
DAGGERS DRAWN
Late last summer, after years of relative

quiet, violence erupted in the West
24
Bank and inside Israel. The first intifada

(198793) was characterized by mass
protests and stone throwing; during the
second intifada (20002005), organized
Palestinian suicide bombings and largescale military reprisals by Israel caused
thousands of casualties. This time, the
so-called loners intifada has taken a
more privatized form. Acting on their
own, young Palestinian men and women
have used knives and homemade guns
to attack Israeli military and police
checkpoints or civilians at flash points
such as the settlements and Jerusalems
Old City. So far, 34 Israelis have died in
these assaults. Almost all the perpetrators
have been arrested or shot on the spot
to date, about 200 Palestinians have
been killedbut more have kept coming.
The loners intifada has presented
the current government with its toughest
test so far. Netanyahu has always claimed
to be tough on terror and has portrayed
his opponents as softies. Yet he and his
top aides have seemed clueless in the
face of the rising violence. Instead of
stanching the bloodshed, they have
redoubled their attacks on those they
deem enemies within: human rights
groups and Arab Israeli politicians. And
the center-left parties, worried about
looking unpatriotic, have gone along
with him. In April, Herzog urged Labor
to stop giving the impression that we
are always Arab-lovers. And Yair
Lapid, the head of the opposition Yesh
Atid (Theres a Future) partyanother
centrist factionhas called on the army
and the police to ease their rules of
engagement and shoot to kill whoever
takes out a knife or a screwdriver or
whatever. Highlighting the danger of
such rhetoric, in late March, BTselem,
a respected human rights group,
released a video taken in Hebron

showing an Israeli soldier executing a
Palestinian suspect who had already
been shot and was lying, bleeding, on
the street.
Instead of remorse, the Hebron
shooting unleashed a wave of ugly
nationalism among many Israeli Jews.
The military high command quickly
detained the soldier and declared his
action immoral, unlawful, and undisciplined. Yet in a public opinion poll
conducted several days after the incident, 68 percent of respondents supported the shooting, and 57 percent
said that the soldier should not face
criminal prosecution. Far-right politicians,
including Bennett, defended the killer,
and Netanyahu, who had initially supported the military brass, quickly closed
ranks with his right-wing rivals and
called the shooters parents to express
his support. When Moshe Yaalon, the
defense minister, nonetheless insisted
on a criminal investigation, he was
roundly attacked on social media for his
stand. After Netanyahu seemed to side
with Yaalons critics, their quarrel
escalated, and in May, Yaalon resigned.
Announcing his decision, Yaalon
remarked, I fought with all my might
against manifestations of extremism,
violence, and racism in Israeli society,
which are threatening its sturdiness and
also trickling into the IDF, hurting it.
That Yaalon of all people could be
subjected to such treatment shows just
how much Israel has changed in recent
years. A Likud leader and former IDF
chief of staff, Yaalon is no leftist: he
supported Oslo but later changed his
mind when, as the head of military
intelligence, he witnessed Arafats
duplicity firsthand. Yet Yaalon believes
Rudels historical narrative

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25
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in the importance of a secular state and

the rule of law. That marked him as one
of the last of the Ben-Gurion-style old
guard still in office. And those credentials were enough to incite the online
mob. It didnt matter that he had an
impressive military record, opposed the
peace process, or supported settlement
expansion. In Netanyahus Israel,
merely insisting on due process for a
well-documented crime is now enough
to win you the enmity of the new elite
and its backers.
THE PERMANENT PRIME MINISTER
One of the ways Netanyahu has retained

power for so longhes now Israels
second-longest-serving leader, after
Ben-Gurionhas been by tailoring
his politics to match public opinion.
In 2009, he leaned toward the center
because he feared Obama and wanted
to dispel his own reputation for recklessness. In recent years, as the Israeli
public has shifted rightward, so has
hewhich has allowed him to more
openly indulge his true passions.
Throughout this period, Netanyahu
has benefited from one other key asset:
the lack of any serious challenger, either
inside or outside Likud. Since returning
to power in 2009, he has consistently
beaten all other plausible candidates
for prime minister in public opinion
pollsby large margins. Within Likud,
Netanyahu has managed to sideline a
series of aspirants, such as Moshe
Kahlon, Gideon Saar, and Silvan
Shalom. And the opposition has failed
to produce a credible alternative of its
own. After leaving office in 2001, Barak
undermined his standing by adopting a
lavish lifestyle deemed unseemly for a
Labor leader. Meanwhile, Tzipi Livni,
26
Olmerts foreign minister and his

successor as the head of Kadima,
actually beat Netanyahus Likud in the
2009 election, winning 28 seats to
Likuds 27. But she was unable to build
a large enough coalition to form the
next government, and her subsequent
weakness as opposition leader damaged
her popular appeal.
Bennett is now trying to position
himself as a younger and more populist
version of his one-time mentor. Theres
no doubt that Bennett is charismatic
and has grown quite popular. But he
leads a small party with a limited base
that cannot win an election unless it
unites with Likud. Nir Barkat, the rightwing mayor of Jerusalem, is another
former high-tech entrepreneur who
harbors national aspirations. But he
lacks charisma and remains unknown
to the public outside Israels capital city.
Netanyahus strongest current
challenger is probably Lapid, the former
columnist and TV anchor who established
Yesh Atid as a centrist party in 2012 and
won a spectacular victory in 2013, earning
Yesh Atid the second-highest number
of seats in the Knesset. Lapid joined
Netanyahus cabinet after he and Bennett
forced the prime minister to drop the
ultra-Orthodox parties. But Netanyahu
soon outmaneuvered him, pushing
Lapid to the Treasurya well-established
graveyard for ambitious politicians, since
it often involves making unpopular
moves such as raising taxes and cutting
benefits. Lapid accomplished little while
in office, and in 2015, after a tough fight
with Herzog and his Zionist Union over
the same voters, Yesh Atid lost almost
half its seats. Since then, Lapid has
improved his public standingpopularity
polls now put Yesh Atid second, after
Likudby appearing to be more

religiously observant and by talking
tough on terror. Lapid is a moderate
(he supports a Palestinian state and
opposes the expansion of remote West
Bank settlements), is an excellent communicator, and is an astute reader of public
sentiment. But he is hypersensitive
he tends to overreact when criticized
and he lacks security experience, a
huge impediment in Israel.
None of this means that Netanyahu
is invulnerable, however. In March,
Haaretz published a poll showing that
a new, imaginary centrist party led by
Gabi Ashkenazi (a popular former IDF
chief of staff), Kahlon, and Saar would
beat Likud in an election held tomorrow. But unless its coalition crumbles,
the government doesnt need to call a
new election until November 2019, and
the nonexistent party remains a fantasy.
In the meantime, Netanyahu continues
to maneuver. He has tried to entice the
smaller right-wing parties into forming
a new, broader party with Likud (so far,
none of them has shown much interest).
And this past spring, he held negotiations with Herzog over the formation of
a unity coalition, only to back off at the
last moment and offer his former ally
Lieberman the post of defense minister.
With Lieberman inside the government,
the ruling coalitionmore right-wing
than everwould get an expanded
parliamentary base and more room to
breathe.
Until the next election does come
around, Netanyahus government
will keep trying to cement as many
changes as possible to Israeli society
and the Israeli establishment. The prime
minister and his allies will push to
appoint more conservatives to the
Supreme Court and more religious

Zionists to key government and
academic positions. They will maintain
their support for Mizrahi culture and
West Bank settlements, will impose
more restrictions on left-wing organizations, and will work to increase
tensions with Israels Arabs.
Regardless of who wins the next
election, at least some of these changes
seem likely to become permanent. The
country has already become far less
tolerant and open to debate than it used
to be. The peace camp has withered,
and very few really challenge the status
of the occupation anymore. Arab-Jewish
relations are so bad that they would
take outstanding leadership and enormous
effort to fix. And the United States
retrenchment has strengthened the
sense among many Israelis that they can
go it alone and no longer need to worry
about pleasing Washington. Its hard to
see how a new Israeli prime minister
or a new U.S. presidentwill be able to
reverse many of these shifts.
July/August 2016
27
Israel Among
the Nations
How to Make the Most of
Uncertain Times
Robert M. Danin
n 1996, Ehud Barak, who was then

Israels foreign minister and would
later serve as prime minister, characterized Israel as a modern and prosperous villa in the middle of the jungle.
Twenty years later, as political turmoil
and violence engulf the Middle East,
that harsh metaphor captures better
than ever the way most Israelis see their
country and its place in the region.
Their standard of living has never been
higher. Their countrys economy is
robust, and Israels entrepreneurial
spirit remains the envy of the world. In
2015, Israel ranked as the planets
fifth-happiest country on the Organization for Economic Cooperation and
Developments Better Life Index,
topped only by Denmark, Finland,
Iceland, and Switzerland. In its first
half century of existence, Israeli soldiers
fought a war virtually every decade
against well-armed conventional Arab
armies. Today, the threat of such a war
has vastly diminished, and the Israeli
military has never been stronger,
both in absolute terms and relative to
its neighbors.
ROBERT M. DANIN is Senior Fellow for

Middle East Studies at the Council on Foreign
Relations and a Senior Fellow at the Belfer
Center at Harvard Universitys Kennedy School.
Follow him on Twitter @robertdanin.
28
Now, however, it is Israeli civilians,

not soldiers, who are the primary
targets of Israels enemies. They are
vulnerable to rockets fired by Hamas
from Gaza and by Hezbollah from
Lebanon, which have killed over 100
Israelis since 2004. And in the past
year, new forms of violence have
emerged, as Palestinians have targeted
Israelis in over 150 seemingly uncoordinated stabbings and more than 50
attacks in which drivers have intentionally rammed pedestrians with their
cars. Israels citizens feel more vulnerable
in a personal sense, walking their
streets, than they have since perhaps
the 1948 War of Independence. Even
during the second intifada, the Palestinian revolt that lasted from 2000
until 2005 and claimed the lives of
more than 1,000 Israeli civilians, Jews
believed they knew where it was safe to
go and where it wasnt. Thats not true
today: in a recent poll conducted by the
Israel Democracy Institute, nearly 70
percent of Israeli Jews surveyed said
they greatly or moderately feared that
they or people close to them would be
harmed by the wave of violence that
has swept the country since last October.
Meanwhile, chaos appears to loom
across almost every border. A bloody
and devastating civil war rages in Syria,
where the regime of Bashar al-Assad
and the jihadists of the Islamic State
(also known as ISIS) seem intent on
outdoing each other in brutality. Neighboring Jordan has long served as a
buffer of sorts to Israels east, but it is
now struggling under the burden of
hosting more than a million Syrian
refugees. And ISIS and other jihadist
organizations roam the virtual no mans
land of the Sinai Peninsula, which the
somewhat wobbly Egyptian government has struggled to secure.

Confronted with threats at home
and disorder all around, many Israelis
have come to feel that the idealistic
aspirations of earlier erasall those
dreams of peaceful coexistence with
the Palestinians and with the greater
Arab worldwere naive at best and
profoundly misplaced at worst. A sense
of bitterness, resignation, and hopelessness now prevails. Many Israeli
politicians seem to see greater advantage
in stoking, rather than countering, such
sentiments. For example, rather than
point to the benefits that peace agreements
and negotiated territorial concessions
have produced, Israeli Prime Minister
Benjamin Netanyahu emphasizes how
other territorial withdrawalsones that
were unilateral and unaccompanied by
peace agreementshave resulted in
further attacks against Israel.
Yet inside Israels defense establishment, headquartered at the Kirya military complex in Tel Aviv, the picture is
more nuanced. Israels security chiefs
share their compatriots sense that the
Middle East has become chaotic and
that todays threats are more diffuse
and inchoate than those Israel used to
face. But these officials also recognize
that their country is far from defenseless
and that the threat of a conventional
conflict has virtually disappeared. As
the armys recently leaked National
Intelligence Estimate for 2016 concluded,
Israel faces no current threat of war
and only a low probability of war in
the coming year. In fact, the analysts
who prepared the document argue
that the turmoil sweeping the Middle
East may even have improved Israels
strategic position.
The disconnect between public

attitudes, political rhetoric, and military
risk assessments reflects a kind of sensory
overload. Israeli strategic planners can
agree on a long list of threats and challenges but not on how to prioritize
them. Like Israels political leaders, they
suffer from a deep sense of strategic confusion. So far, their response has been
to hunker down and ride out the
turbulence. That is a natural reaction.
But its also a risky one, which could
lead Israel to forgo the kind of subtle,
clever approaches it has adopted in the
past when faced with complex threats.
For all the danger Israel faces today,
the current turmoil has also created real
opportunities for Israel to improve its
strategic position. But these will come
to naught unless the government can
see them clearlyand find the strength
to take advantage of them.
FRIENDS OLD AND NEW
Although the chaos and violence

currently tearing apart the Middle East
is deeply unsettling, the changes that
have swept the region in recent years
have actually led to a closer alignment
and stronger relations between Israel
and its only official partners in the Arab
world, Egypt and Jordan. The peace
treaty that Egypt and Israel signed in
1979 removed Israels single largest
military threat and effectively ended
the era of all-out war between the Arabs
and the Israelis. It remains one of the
most important contributors to Israels
security, since it ensures that the country
will not be attacked by multiple armies
on multiple fronts simultaneously, as it
was in 1948, 1967, and 1973. Despite the
tumult of the 201011 Arab uprisings,
including an Egyptian revolution that
July/August 2016
29
Robert M. Danin
briefly brought the anti-Zionist Muslim

Brotherhood to power, the peace treaty
has proved durable and critical for both
countries. Even the Islamist Egyptian
president Mohamed Morsi acknowledged the treatys importance and never
sought to challenge or abrogate it. When
the military deposed Morsi in July 2013,
Egyptian-Israeli ties grew stronger than
ever, with both sides firmly aligning
against Hamas in Gaza, which is sandwiched between them. Egyptian and
Israeli national security interests have
converged to such a degree that in 2014,
when Hamas rocket attacks provoked an
intense 50-day Israeli military campaign
in Gaza, Egypt clearly sided with Israel
and even waved off U.S. efforts to bring
an early halt to the fighting.
In the postArab Spring period,
Israel has also drawn closer to Jordan,
the country with which it shares its
longest border. The open cooperation
facilitated by the peace treaty that the
two countries signed in 1994 has proved
crucial to Israels domestic and regional
security interests. Jordan has played an
instrumental role in helping defuse
tensions at the Jerusalem holy site known
to Muslims as Haram al-Sharif, or the
Noble Sanctuary, and to Jews as the
Temple Mount. Jordan is also helping
absorb some spillover from the unrest
roiling Iraq and Syria. Security cooperation between Israel and Jordan is
flourishing, particularly since both share
a common interest in securing Jordans
border with Syria and in countering
Islamists across the region.
Farther afield, Israel has also made
some new friends and strengthened ties
with old ones. In a sense, it has developed a new version of the periphery
doctrine that the country pursued in
30
the 1950s, when it established warm

ties with important non-Arab states
on the outer edges of the Middle East,
such as Ethiopia, Iran, and Turkey.
Since Israels strategic relationship with
Turkey broke down in 2010, Israel has
forged new partnerships with Cyprus
and Greece, both bitter foes of the
Turkish government. Israel has also
developed closer ties with a number of
African countries, which has allowed it
to increase its influence on the continent and to interdict arms flows to
militants in the Sinai and Gaza. And
Indiawhich, as a leader of the NonAligned Movement, once kept Israel at
arms lengthhas developed extensive
commercial, military, and diplomatic
ties with the Jewish state in recent years.
Relations with Russia have also
improved markedly: indeed, Netanyahu
and Russian President Vladimir Putin
clearly enjoy a better relationship with
each other than either does with U.S.
President Barack Obama. Washington
and Moscow have argued viciously over
the civil war in Syria; Israel, in contrast,
appears to have established some clear
rules of the road with Russia for operations there. According to press reports,
Russia even temporarily transferred
some military officers to Israels military
headquarters in Tel Aviv in order to
improve coordination and prevent accidental clashes in the skies above Syria.
UNCLEAR AND PRESENT DANGERS
Despite such gains, Israel still faces

many threats and potential dangers,
and the countrys leaders cant seem to
agree on which are most pressing.
President Reuven Rivlin, currently
one of the countrys most popular and
widely respected officials, recently
The Over-Promised Land: at the beach in Tel Aviv, December 2014
BA Z R AT N E R / R E U T E R S
suggested that ISIS might be the greatest

present danger. Yet few in Israels defense
establishmentwhich comprises Israels
military, intelligence, and national security
agenciesagree with that position. They
largely see ISIS as an indirect problem,
one that represents a bigger threat to
regional stability and the viability of
Israels neighbors than it does to the
countrys own security.
The more direct and urgent danger,
most believe, comes from Iran and its
two main militant allies: Hamas and
Hezbollah. Indeed, in January, then
Defense Minister Moshe Yaalon declared
that he would rather face ISIS in the
Golan Heights than see Iranian troops or
their proxies occupy that area. Israeli
leaders see Iran as a rising revisionist
power and have watched nervously as it
has built significant influence, if not
quite dominance, in Iraq, Lebanon, Syria,
and Yemen.
Yet underneath this general consensus,

Israeli leaders dont agree on the precise
nature of the danger Iran represents. In
recent years, Netanyahu has warned that
Iran (or at least a nuclear-armed Iran)
could constitute an existential threat to
Israel. Yet that formulation has been
vigorously disputed even by other
security hawks, such as Barakdespite
the fact that Barak reportedly advocated a
military strike on Irans nuclear facilities
as recently as 2012. To them, a nucleararmed Iran would represent an intolerable threat but not an existential one.
Netanyahu continues to object to
the deal Iran struck last year with the
United States and other major powers
that requires Iran to significantly curtail
its nuclear program in exchange for
relief from international sanctions. Yet
many of Israels security professionals
have adopted the view that the agreement,
although flawed, has pushed the Islamic
July/August 2016
31
Robert M. Danin
Republic further away from acquiring

a bombeven further, perhaps, than
an Israeli military strike would have.
They believe that Tehran has significantly reduced its stockpile of enriched
uranium and the number of centrifuges
it operates and that Irans ability to
produce plutonium has been eliminated,
for the time being.
Still, virtually all Israeli officials
view Iran as implacably hostile and
expansionist. And Israel has taken it
upon itself to act as the most stringent
international monitor of Irans compliance with the nuclear agreement, vigilantly pointing out every infraction.
But Israel is struggling to determine
what, if anything, to do with the additional timesomewhere between five
and 15 yearsthat the nuclear agreement with Iran has put on the clock.
YOULL NEVER WALK ALONE
For many decades, Israel enjoyed a high

degree of freedom when considering
how to respond to the various threats it
faced. David Ben-Gurion, the countrys
founding father, pursued a delicate
strategy of nonidentification, courting
support from global powers but avoiding
the constraints of formal alliances. Today,
Israelis still ferociously cling to this idea
of independence and to the need for
the country to be able to defend itself,
by itself, as the popular phrase goes.
Yet the reality has long since shifted.
Like other medium-size powers, Israel
cannot match every possible threat by
itself. Most Israelis recognize that truth,
and the state has grown increasingly
dependent on its only reliable friend,
the United States, with which it has
developed a de facto strategic partnership over the last 30 years or so.
32
Israels lack of complete independence

was demonstrated most dramatically
during the standoff between Netanyahu
and Obama over Iran. Israel had mobilized its formidable military and intelligence resources to prevent Iran from
developing a nuclear breakout capacity.
Even as the United States and other
great powers initiated talks with Iran,
Israels air force stepped up its training,
and its officials began planning a preventive attack. But faced with stiff opposition
from the Obama administration, Israels
government ultimately stood down.
Israel had been deterrednot by Tehran
but by Washington.
Still, that episode has created little
if any new distance between the two
allies; on the contrary, the Israelis have
sought to move even deeper into the
American embrace. Despite the sour
personal relations between Netanyahu
and Obama, their two countries are
now negotiating a new ten-year military
assistance program that will replace and
expand an expiring agreement that has
ensured over $3 billion in annual U.S.
military assistance for the past decade.
And it is almost certain that whoever
moves into the White House next year
will seek to improve U.S. relations
with Netanyahus government.
A FORMAL ALLIANCE
Improving relations with Washington

and perhaps changing the structure of
the U.S.-Israeli relationship represent
one of the best ways for Israel to take
advantage of this uncertain moment
not by merely seeking a return to the
state of affairs before Obama but by
forging an even stronger bond with the
United States. Israelis regularly refer to
the Americans as allies. Yet the United
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States and Israel have no formal,

treaty-based alliance. There have been
times when Israel seriously contemplated
pushing for such an arrangement. But
in each instance, it decided against doing
so, fearing that the price Washington
would likely demandterritorial concessions to the Arabswould prove too high.
Today, Israels ambivalence stems
from different factors. First, the Israelis
fear that an alliance with the United
States would force them to relinquish
even more of their military independence, potentially preventing them from
conducting certain military actions, ones
along the lines of the 2007 Israeli air
strike against an incipient Syrian nuclear
facility, which the Israelis undertook
after extensive consultations with the
United States but without American
participation. An alliance would also
challenge the idea of Israeli self-reliance,
which is central to the countrys defining ethos.
But as the dispute over Irans nuclear
program showed, when push comes to
shove, Israel is already willing to constrain
itself and accept a high level of dependence in order to protect its close relationship with the United States. And
other U.S. allies, such as Turkey, have
initiated military actions when they
believed their national interests were
threatened, regardless of Washingtons
views. A formal U.S.-Israeli alliance,
therefore, would not necessarily have a
significant practical effect on Israeli
freedom of maneuver. Israels other
major reservation regarding an alliance
stems from a belief that the United
States backs Israel partly because the
Americans know that the Israelis will
never ask U.S. soldiers to fight on
Israels behalf. But a formal alliance
would still allow Israel to maintain its

commitment to not ask for American
boots on the ground.
An alliance would offer significant
benefits to Israel. First and foremost,
it would provide an ironclad security
guarantee: any attack on Israel would
be met and rebuffed by the United States.
During the Iran imbroglio, Obama
repeatedly pledged that the United
States will always have Israels back.
But he never specifically, publicly promised to protect Israel against an Iranian
attack. A treaty with Washington would
ensure a lasting commitment of exactly
that kind.
A formal alliance would also allow
the Israelis to stop worrying, as they
frequently do, about the contingent
nature of their partnership with the
United States. How much longer, they
wonder, can Jerusalem safely rely on
Washington to maintain their informal,
quasi alliance? Many Israelis worry that
the two countries will drift further apart
as each undergoes demographic, political,
and social changes. This may be happening
already. A poll recently conducted by
the Pew Research Center indicated that
each U.S. generation is less sympathetic
toward Israel than its predecessor. There
is no guarantee that the strong pro-Israel
consensus that has long been a bipartisan
feature of U.S. politics will endure
forever. Now is therefore the time for
Israel to lock in the existing benefits
of its relationship with Washington.
TAKE THE INITIATIVE
Closer to home, a second extremely

important opportunity for Israel to
consider involves its relationships with
a number of Arab states that have historically wanted nothing to do with it. In
July/August 2016
33
Robert M. Danin
ways unforeseen and largely unintended,

Obama may have made a greater contribution to improving these relationships
than he ever thought possible. His efforts
to pivot the United States away from
the Middle East while negotiating with
Iran highlighted a number of interests
that Israel shares with the Sunni Arab
countriesthe very same states Israel
battled ferociously during the first
50 years of its existence.
In the last decade, the centuriesold Sunni-Shiite divide has grown
into a chasm, fueled byand, in turn,
fuelingthe rivalry between the Sunni
Arab powers and an Iranian-led Shiite
bloc. The sectarian split has replaced
the regions traditional fault linethe
Arab-Israeli conflictand has begun to
reorder the Middle East in surprising
ways. Israel and the Sunni Arab states
now more clearly share a chief foe, in
Iran, and a sense of concern over U.S.
retrenchment.
Israel should leverage this change to
shape a better future for itself among its
neighbors. Some Israelis worry that the
Sunni Arab states may be too unstable
or unreliable to act as partners. But Israel
should seize on their sense of weakness
and their openness to explore a formal
peace initiative.
In September 1967, following the
Arabs devastating defeat in the SixDay Warduring which Israel captured
all of Jerusalem and the west bank of
the Jordan Riverthe Arab League
convened in Khartoum, Sudan, and
issued its now-infamous declaration
of what came to be known as the three
nos: no peace with Israel, no recognition of Israel, and no negotiations with
Israel. Israel responded by casting
itself as the reasonable party, willing
34
to trade territory for peace, and took

every opportunity to portray the Arabs
as inexorably hostile and belligerent.
But the Arab wall of rejection
cracked a decade later, when Egyptian
President Anwar al-Sadat traveled to
Jerusalem and made peace. And the
wall arguably crumbled altogether in
2002, when the Arab League collectively endorsed a proposal put forward
by Saudi Crown Prince Abdullah (who
was king from 2005 until his death last
year) that offered Israel the prospect of
peace, security, and normal relations
in exchange for a complete Israeli
withdrawal to the pre-1967 borders, a
move the Arab states see as the only
way to begin resolving the IsraeliPalestinian conflict.
The Israelis had ample cause for
skepticism. First, the timing was poor.
One day prior to the Arab Leagues
endorsement of the plan, Israel suffered
a massive terrorist attack in which 30
Israelis in the coastal city of Netanya
were killed at a Passover Seder; the
bloodshed left the country in no mood
to negotiate with its enemies. More
substantively, the Israelis doubted that
the Arabs could ever be flexible enough
on their demand for a right of return
for Palestinian refugees. And the Israelis
also believed that the Arabs were only
pretending to reach out to them in order
to curry favor with Washington so as to
gain leverage in the run-up to an anticipated U.S. invasion of Iraq, which the
Arab states opposed.
But the Arab Peace Initiative has
proved to be more than a tactical ploy:
for the past 14 years, the Arab League
has stood by it, even in the face of
intense public anger in the Arab and
wider Muslim world over Israels
military actions in Lebanon and Gaza.

On the right of return, the Arabs have
called for a just and agreed solution,
suggesting there may be some room for
flexibility. And in 2013, the league even
made modifications to the plan to make
it more attractive to Israel: for example,
the proposal now incorporates the notion
of negotiated land swaps between Israel
and the Palestinians, which shows that
it is not a take-it-or-leave-it proposal.
Emissaries from Egypt and Jordan have
traveled to Israel on behalf of the Arab
League to allay Israeli apprehensions.
Prince Turki al-Faisal, a former head of
Saudi intelligence and former ambassador
to the United States, has met publicly
with prominent Israelis and reached out
to the Israeli public through interviews
with various Israeli media outlets.
Throughout, however, Turki has made
it clear that there can be no progress in
broader Arab-Israeli relations without
addressing the Palestinian issue.
The Israeli government has yet to offer
an official response to the plan, and Israels
leaders have essentially ignored it. There
have been a few exceptions: Dan Meridor,
a former Likud deputy prime minister,
and Yair Lapid, who leads the center-right
party Yesh Atid, have both supported the
idea of considering the Arab initiative
under certain conditions. And a number
of former chiefs of the Mossad, the
Israeli foreign intelligence service,
including Danny Yatom and Meir Dagan,
have decried Israels lack of a positive
response. But for the most part, the Arab
plan has been met with Israeli silence.
After decades of bemoaning Arab rejectionism, Israel now finds itself branded
the rejectionist party itselfby the Arabs.
The staunchest Israeli critics of the
Arab Peace Initiative argue that given
the chaos and instability plaguing the

region, its not even clear how long the
current Sunni Arab governments will
stay in power: Why negotiate with
them when they are so weak? Critics
also point out that the Palestinians
seem unwilling or unable to conclude
a dealso why give them a veto over
Israels regional relations? The answer is
that talking with the Arabs might have
strategic benefits even if it fails to unlock
the stalemate with the Palestinians. Better
contacts between Israel and the Sunni
Arab states, particularly Saudi Arabia,
could help forge a more united front
against Iran. Israel could test the Arab
plans sincerity and in doing so open up
a channel to the broader Arab world by
expressing a desire to negotiate with
Saudi Arabia and other Arab League
states, while maintaining certain Israeli
reservations about some of the plans
elements. As one senior Israeli official
recently told me, Never before have we
been offered so much while being asked
for so little in return.
NOTHING VENTURED . . .
If Israel prefers not to deal with the Arab

Peace Initiative, then it should consider
offering up its own regional peace initiative, which Netanyahu has declined to
do. Many Israelis, even within the prime
ministers camp, have been frustrated
by their leaders passivity on this front.
Indeed, Netanyahus tenure has been
defined not by right-wing extremism, as
many of Israels detractors claim, but by
risk aversion. In his more than seven
years in power, Netanyahu has neglected
to articulate a visionmuch less offer a
clear planfor how Israel could achieve
peace and consolidate its security and
economic gains. Given the narrow rightJuly/August 2016
35
Robert M. Danin
wing base on which his government

rests, Netanyahu is understandably
reluctant to hint at the types of concessions he would be prepared to make for
peace. But in adopting a wait-and-see
attitude toward the political changes
that are roiling the Middle East, Israel
is forfeiting a chance to help set the
international agenda in a way that would
be favorable to it.
Every previous Israeli prime minister
has recognized that when it comes to
statecraft, Israel can play either offense
(initiating peace negotiations on its own
terms) or defense (resisting attempts
by its friends and adversaries alike to
force it to the table on terms Israel
dislikes). Offensetaking the battle to
its adversariesis far more consonant
with the traditional Israeli political ethos.
Israel would gain considerable support
from its friends and allies by outlining a
vision for peace and an approach toward
realizing it. And the country will continue to pay a price if it fails to do so.
Israelis rightly point out that their
conflict with the Arabs no longer defines
the regions politics. But that condition
will not last forever: an almost inevitable
future outbreak of violence in Gaza,
the West Bank, or Lebanon will surely
return the worlds attention to Israel,
and the major powers will once again
call on it to try to make concessions.
What is more, while Israel sits on its
hands, the other parties to the conflict
are pushing forward with their own
agendas. Israels friends, including the
United States, are weighing plans to
propose new peace efforts before the
end of this year. Meanwhile, Palestinian
officials are seeking new ways to confront
or isolate Israel, by gaining ever more
official recognition at the UN and by
36
mobilizing international boycotts of

Israeli goods and scholarship.
By outlining a plan for peace now,
precisely when the Middle East is
experiencing unrest and turmoil, Israel
has an opportunity to explore the
possibility of new relationships in its
neighborhood and better ones in the rest
of the world. Israel ought to apply to its
foreign relations the same innovative,
entrepreneurial spirit that has allowed
the country to thrive in the technological
and military realms. Laying out a vision
would not imply a naive denial of harsh
realities. Instead, Israel would improve
its standing by deciding, after many
years of inaction, to simply try.
Arabs in Israel and the

Struggle for Equal Rights
Asad Ghanem
hen the world focuses on the

Arab-Israeli crisis today,
the plight of the 4.6 million
Palestinians living in the Gaza Strip
and the West Bank gets most of the
attention. But another pressing question
haunts Israeli politics: the status and
future of Israels own Arab citizens,
who number around 1.7 million and
make up around 21 percent of its population. Over the past few decades, Arabs
in Israel have steadily improved their
economic lot and strengthened their
civil society, securing a prominent place
in the countrys politics in the process. But
since 2009, when Benjamin Netanyahu
began his second term as prime minister,
they have also seen their rights erode,
as the government has taken a number
of steps to disenfranchise them. Israeli
policymakers have long defined their state
as both Jewish and democratic, but these
recent actions have shown that the government now emphasizes the former at the
expense of the latter.
This onslaught has triggered a debate
among the leaders of the Arab community in Israel over how to respond. One
camp wants Arab citizens to deepen their
integration into mainstream society and
ASAD GHANEM is Associate Professor of
Comparative Politics at the University of Haifa.
LEFT OUT AND MOVING UP
Israels Arab citizens are the descendants

of the approximately 150,000 Palestinians
who stayed in the country following
the expulsion of the majority of their
brethren around the time of Israels
establishment in 1948. Over the two
decades that followed, Israels remaining Arabs suffered from high rates of
poverty and low standards of living,
had few opportunities for education,
and were governed by martial law, which
imposed various restrictions on them,
from limitations on domestic and international travel to constraints on setting
up new businesses. To prevent the
emergence of independent Arab centers
of power, the Israeli government also
closely supervised the activity of Arab
municipal and religious institutions
and arrested many Arab activists.
Since 1966, when martial law was
lifted, the situation of Arab citizens has
July/August 2016
37
Israels SecondClass Citizens
join forces with the Israeli left to push

for equality on the national stage. The
other urges Arabs to withdraw from
national politics altogether, creating
autonomous cultural, educational, and
political institutions instead. At the
moment, Arab political leaders seem
to favor the former approach. But the
best strategy would be for Arabs to
synthesize these competing visions
into a unified program: one that calls
on the Israeli government to integrate
Israels Arab citizens into existing
political structures even as it demands
greater autonomy in such areas as educational and cultural policy. The goal
would be a system that grants Jews and
Arabs equality in shared institutions
and protects the rights of both to shape
their own communities.
Asad Ghanem
improved greatly. Consider education:

in 1960, only 60 Arab students were
enrolled in Israeli universities; today,
there are more than 20,000 Arab university students in the country, twothirds of whom are female, and around
10,000 Arab Israelis study abroad.
Living standards have also risen, as
has the status of women, and a strong
middle class has emerged.
In 2014, the most recent year for
which data are available, 66 of the 112
towns in Israel with more than 5,000
residents had virtually all-Arab populations. And thanks to high birthrates
and a young populationhalf of Israels
Arab citizens are under the age of 20,
whereas only 30 percent of Jewish Israelis
arethe Arab Israeli population is likely
to keep growing fast, with or without more
support from the government. (Some
Israeli officials have described the growing Arab population as a threat to the
Jewish majority; in fact, since the Jewish
population is also growing, it is likely
that Arabs will continue to make up
only around 20 percent of Israels population over the next three decades.)
In short, Arabs in Israel are wealthier,
healthier, and more numerous than ever
before. Yet by most measures of wellbeing, they still lag behind their Jewish
counterparts. In 2013, the most recent
year for which data are available, the
median annual income of Israels Arab
households was around $27,000; for
Jewish households, it was around $47,000,
nearly 75 percent higher. The infant
mortality rate is more than twice as high
among Arabs as it is among Jews. Arabs
are also underrepresented in Israels
bureaucracy and academic institutions,
making up less than two percent of the
senior faculty in the countrys universities.
38
And Arabs remain deeply segregated

from Israels Jewish population: 90
percent of Arabs live in almost exclusively
Arab towns and villages, and with just a
few exceptions, Arab and Jewish children
attend separate schools. (Nevertheless,
Arabs and Jews remain relatively open
to integration: a 2015 survey by the Israeli
sociologist Sammy Smooha found that
more than half of Israels Arabs and Jews
supported the idea of Arabs living in
Jewish-majority neighborhoods.)
What is more, when it comes to
government support in such areas as the
allocation of land for new construction,
financing for cultural institutions, and
educational funding, Arabs suffer from
ongoing discrimination, despite some
recent progress. Arabs make up around
21 percent of Israels population, but
according to the Mossawa Center, a
nongovernmental organization that
advocates for Israels Arab citizens,
Arab communities receive only seven
percent of government funds for public
transportation and only three percent
of the Israeli Ministry of Culture and
Sports budget is allocated for Arab
cultural institutions; Arab schools are also
significantly underresourced. (Toward
the end of 2015, the Israeli government
approved a five-year economic development program for Israels Arab community,
worth up to $4 billion, that will increase
funding for housing, education, infrastructure, transportation, and womens
employment. Although the plan
represents a step in the right direction,
the exact amount of funding that will be
allocated to each of these areas remains
unclear, as does the process by which
its implementation will be monitored.)
And then there is the fact that Israel
defines itself along ethnonationalist
lines that exclude the Arab minority

from a national anthem that famously
describes the yearning of a Jewish soul
for a homeland in Zion to a flag that
displays a Star of David. In these ways,
the Israeli government has maintained
the dominance of the Jewish majority
and denied Arabs genuine equality.
Arabs in Israel thus confront a
frustrating confluence of factors: on the
one hand, they enjoy a rising socioeconomic position; on the other, they face a
government that in many respects has
prevented them from achieving true equality. How they respond to this frustrating
dynamic, and how the Israeli government reacts, will have an enormous impact
on the future of Israeli society, politics,
and security.
THE INTERNAL DIVIDE
Arabs in Israel are not politically monolithic, and their goals vary. Their civic
organizations, political activists, and public
intellectuals offer competing visions for
both the communitys internal development and its relationship with the state.
Broadly speaking, however, their
agendas tend to fall into one of two
frameworks, each based on a different
understanding of Arab Israelis split
identity. The firstcall it a discourse of
differencesuggests that Arabs ethnocultural identity, rather than their Israeli
citizenship, should be the starting point
of their demands for change. By this
logic, the Israeli government should
empower Arabs to autonomously govern
their own communities, by, for example,
encouraging Arab officials to reform the
curricula of Arab schools. The seconda
discourse of recognitiontakes Israeli
citizenship, rather than Arab identity, as its
starting point. This framework suggests
that equality will be achieved when the

state recognizes Arabs as equal Israeli
citizens and equitably integrates them
into existing institutions.
For now, the latter approach seems
to be dominant among Arabs in Israel.
But even across this divide, there are a
number of areas of consensus. Arabs of
all political tendencies tend to condemn
the governments current policies as
segregationist and discriminatory; many
also contend that the governments
professed commitments to democracy
and to the Jewish character of the state
are irreconcilable. Nor are these the only
points on which most Arabs agree: around
71 percent of Arabs in Israel support
a two-state solution to the IsraeliPalestinian conflict, according to a 2015
survey, and only 18 percent reject the
coexistence of Arabs and Jews in Israel.
The various strains of Arab political
thought were brought together in December 2006, when a group of Arab
activists and intellectuals published a
declaration, The Future Vision of the
Palestinian Arabs in Israel, that sought to
define Arabs relationship with the state
and their hopes for the countrys future.
The document, which I co-authored,
called on the Israeli government to
recognize its responsibility for the
expulsion of Palestinians around the
time of Israeli independence and to
consider paying reparations to the
descendants of the displaced; to grant
Arab citizens greater autonomy in
managing their cultural, religious, and
educational affairs; to enshrine Arabs
rights to full equality; and, perhaps
most striking, to legally define Israel
as a homeland for both Arabs and Jews
a direct challenge to the historically
Jewish character of the state.
July/August 2016
39
Asad Ghanem
Ratified by the National Committee

for the Heads of the Arab Local Authorities in Israel (a body that represents
all of Israels Arabs), the document was
embraced by the Arab public: a poll I
conducted in 2008 with the sociologist
Nohad Ali found that, despite their
many differences, more than 80 percent
of Arab Israelis supported its main
proposals. In the years since its release,
politicians representing some of Israels
major Arab political parties have repeatedly called on the government to act on
its demands. But Jewish leaders in the
Israeli government, media, and academia have largely opposed the
document. The board of the Israel
Democracy Institute, a think tank,
produced a statement in January 2007
arguing that the Future Vision report, as
well as two other documents released
by Arab activists in 2006, den[ied] the
very nature of Israel as a Jewish and
democratic state and declaring that the
institute reject[ed] this denial and its
implication that there is an inescapable
contradiction between the states Jewish
and democratic nature.
PARLIAMENTARY PREJUDICE
Arab-Jewish relations got even worse in

the years after 2009, when Netanyahu
returned to the premiership. Since then,
the Israeli government has taken numerous steps to further hold back Arab
citizens, from rules that limit the rights
of Arabs to live in certain Jewish villages
to a law that restricts the ability of
Palestinians in the West Bank to obtain
Israeli citizenship if they marry an Arab
citizen of Israel. (Foreign Jews of any
nationality, meanwhile, can become
Israeli citizens without establishing
family ties to Israelis.) In the Negev
40
desert, home to most of Israels Bedouins,

the government has introduced projects
that aim to cement Jewish control of
the land, by, for example, demolishing
unrecognized Bedouin settlements and
establishing planned Jewish towns in their
place. More generally, the Netanyahu
government has stepped up the official
rhetoric affirming the need to strengthen
the Jewish character of the state.
In March 2014, the Knesset passed a
law raising the threshold for representation in the legislature from two percent
to 3.25 percent of the popular vote.
The move threatened to strip the four
so-called Arab partiesBalad, Hadash,
Taal, and the Islamic Movement in
Israels southern branchof their seats in
the election of 2015. It was a reminder
that the Israeli governments anti-Arab
policies derive as much from the calculation on the part of the Netanyahu
government that weakening the political
position of Arabs might keep left-wing
parties from regaining power as from
the prejudices of some Israeli officials.
Largely to prevent their exclusion
from the Knesset, the Arab parties banded
together in January 2015 to create the
Joint List, a big-tent political party that
ran on a single ticket in the election held
that March. On election day, Netanyahu
sought to boost Jewish turnout by making
the racially charged claim that Arab voters
were streaming in droves to polling
stations. The Joint List was remarkably
successful nevertheless. Some 82 percent
of Israels Arab voters cast a ballot in
support of it. With 13 seats, it emerged
as the third-largest political party in the
Knesset after Netanyahus Likud Party
and the center-left Zionist Union. Even
more impressive, the Joint List managed
to increase turnout among Arab voters by
Speaking up: the Joint List leader Ayman Odeh at a protest in Tel Aviv, October 2015
AMI R COH EN / REUTE RS
seven percentage points, from 56.5 percent Jewish threats to Muslim holy sites in
in the 2013 election to 63.5 percent in
Jerusalem. And in February of this year,
2015. This surge suggests that Arabs in
after three Arab parliamentarians visited
Israel have become more confident that the families of Palestinians who were killed
their elected representatives can overcome after attacking Israelis, Jewish lawmakers
their differences and act as an effective
introduced a so-called suspension bill that
united force in the Israeli establishment would allow a three-fourths majority of the
in short, that national politics offer a path Knesset to eject any representative deemed
toward change. At least when it comes
to have denied the Jewish character of the
to parliamentary representation, rightstate or incited violence. The Arab popuwing efforts to impede the progress of
lation views the proposed law as a direct
the countrys Arabs have not succeeded. attempt to sideline their representatives
Rather than accept this show of
on the national stage. Despite the delegitstrength, Netanyahus coalition responded imization campaign against us and the
with further measures meant to weaken
raising of the electoral threshold, we
Arabs political position. In November
decided to remain part of Israeli politics,
2015, his government outlawed the
Ayman Odeh, an Arab parliamentarian
northern branch of the Islamic Movement, who heads the Joint List, said during a
an Islamist organization that has rallied a
debate on the proposed rule in the
substantial portion of the Arab community Knesset in February. Yet we continue
around opposition to what it describes as
to be harassed.
July/August 2016
41
Asad Ghanem
CITIZENS, UNITED
These developments have intensified

the search for a new approach among
Arab elites. Two main alternatives have
emerged. The first, headed by Odeh,
argues that Arab Israelis should work with
the Israeli left to unseat the Netanyahu
government and replace it with a centerleft coalition that is willing to resume
the peace talks with the Palestinians
and consider major steps to advance the
equality and integration of Arab citizens.
The second, led by the northern branch
of the Islamic Movement, as well as
those Knesset members on the Joint List
who represent Balad, opposes forming
a coalition with the Israeli left. Both
camps support the creation of a separate
political body to represent Arab citizens,
but whereas the former believes that
such a body should supplement Arab
voters current representation in the
Knesset, the latter believes it should
replace it.
These competing platforms have
split the Arab public. In the 2015 survey
conducted by the sociologist Smooha,
76 percent of Arab Israelis polled
supported the Joint Lists cooperation
with Jewish parties in the Knesset. But
33 percent of Arab respondents voiced
support for a boycott of Knesset elections; 19 percent supported the use of any
means, including violence, to secure
equal rights; and 54 percent said that a
domestic intifada would be justified if
the situation of Arabs does not substantially improve.
The future of the Arabs in Israel
depends in part on their ability to overcome these internal divisions, which
have hindered the ability of the Arab
leadership to achieve progress. Disagreement among Arab leaders as to whether
42
a directly elected Arab political institution should replace or supplement Arabs

representation in the Knesset, for
example, has so far left the Arab population without an elected body of its own.
In fact, it should be possible to synthesize
these competing visions into a unified
program that pushes for equal representation in existing institutions and
greater autonomy when it comes to
educational and cultural policy. No
matter what shape such a platform takes,
however, it should commit Arab activists
to nonviolence, and it should clearly
demand that the Israeli government
abolish discrimination in the allocation
of state resources. Finally, since broad
support for Arabs demands for change
will make them more effective, Arabs
should invite Jews in Israel, Jewish organizations outside the country, Arabs and
Palestinians in the region, and others
in the international community that are
sympathetic to their cause to endorse
the platform.
But in many ways, the future of the
Arabs in Israel hinges on developments
over which they have little control. The
first is how the Netanyahu government
and its successors manage Israels conflict
with the Palestinians in the Gaza Strip
and the West Bank: whereas open violence between Israel and the Palestinians
tends to exacerbate anti-Arab sentiment
among Israels Jewish majority, a solution
to the conflict could set the stage for
reconciliation among Arabs and Jews in
Israel. The second, of course, is how the
Israeli government treats its own Arab
citizens. Regardless of the states choices,
however, Arabs in Israel can still shape
their own fatebut that will require
settling on a unified political program.
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The IDF Adapts to

New Threats
Amos Harel
oon after Benjamin Netanyahu

began his second term as Israels
prime minister in March 2009,
he ordered the countrys military to
develop a plan for a unilateral military
strike on Irans nuclear facilities. The
air force and the intelligence branch
went to work immediately; according to
Ehud Olmert, Netanyahus predecessor,
the preparations alone would ultimately
cost the country nearly $3 billion.
Israel never carried out the attack,
of course, and in retrospect, Netanyahu
and Ehud Barak, then Israels defense
minister, may never have seriously
considered launching one. But U.S.
President Barack Obama took the threat
seriously enough to toughen sanctions
against Iran in response. By bringing
the Iranian economy to its knees, the
sanctions paved the way for the election
of President Hassan Rouhani, a relative
moderate who pushed through the international agreement that has since put
Irans nuclear program on hold for the
next decade.
Since then, Israels security agencies
have been able to refocus their attention
AMOS HAREL is Senior Military Correspondent for Haaretz and the author of Teda kol em
Ivria: Kavim ledmutu shel Zahal hachadash (Let
Every Jewish Mother Know: The New Face of
the IDF).
UNSWORN ENEMIES?
Shortly before Gadi Eisenkot became the

IDFs chief of staff in February 2015, he
met with Dan Meridor, a former member
of Netanyahus security cabinet. Youre
going to command an exceptional army,
Meridor told me he told Eisenkot. You
only have one problem: there are no
serious enemies left to fight. Meridor
was exaggerating, but he had a point.
Israels traditional foes no longer pose
the threat they once did.
July/August 2016
43
Israels Evolving
Military
on all the other threats that gathered

during the years they were preoccupied
with Irans nukes. In the last five years,
states and borders have collapsed throughout the Middle East, militant groups
such as the Islamic State (also known as
ISIS) have conquered vast territories and
drawn in large numbers of followers, and
the schism between Shiites and Sunnis
has turned more violent. All this turmoil
has fundamentally transformed the dangers
Israel now faces. The conventional threat
once posed by the Syrian military has
almost completely disappeared, only to
be replaced by the appearance of more
terrorists on another of Israels borders.
At the same time, since October
2015, the conflict with the Palestinians
has flared up, with teenagers from the
West Bank carrying out lone wolf
knife and gun attacks. The Israeli
militarys response to the violence has
raised thorny questions about its code
of conduct and laid bare the broader
divisionsbetween right and left, and
between religious and secular Jews
that are transforming the Israel Defense
Forces and the country itself. At the
same time that the IDF must confront
external threats, then, Israels internal
problems are falling on its shoulders.
Amos Harel
For most of the past few decades, the

IDFs nightmare scenario was a repeat of
the 1973 Yom Kippur War, when Syrian
tanks stormed the Golan Heights and
Syrian commandos captured Mount
Hermon in a surprise attack. Today,
after more than five years of civil war,
Syria has disintegrated, and the risk of
a conventional conflict with Israel has
nearly vanished. In April, Israeli soldiers
on Mount Hermon told me that their
Syrian counterparts on the other side
of the border, unable to obtain supplies,
had deserted their positions more than
a year earlier. Most of Syrias tank units
and artillery batteries have disbanded,
and much of the countrys massive arsenal
of chemical weapons, which Damascus
began stockpiling in the 1970s to deter
Israel, has been dismantled under
international supervision.
As for the Arab countries still controlled by the authoritarian old guard,
they have grown ever more interested
in cooperating with Israel, albeit quietly.
Egypt, Jordan, and, to a lesser extent,
Saudi Arabia and the United Arab
Emirates have abandoned their past
fixation on the Israeli-Palestinian conflict
and have mostly recognized that the
problems they share with Israel are
bigger than those that divide them:
Iran and its proxies, on the one hand,
and ISIS and al Qaeda, on the other. As
did Israeli leaders, Saudi officials criticized the Obama administration over
the nuclear deal with Iran; in recent
years, Saudi Arabia has also stepped
up its intelligence sharing with Israel.
The disappearance of the conventional threats to Israels security is not
just the result of recent regional turmoil,
however; it is also a product of these
governments recognition of Israels
44
military superiority. When it comes to

Israels commanders, defense technologies, air force, and intelligence agencies,
the countrys capabilities are vastly
superior to those of its neighbors. Its
victories in most conflicts since 1948
have made this superiority abundantly
clear. Partly as a result, since 1973, Syria
has mostly avoided confronting Israel
directly, and Egypt and Jordan have
signed peace agreements with it.
DANGEROUS NEIGHBORS
Yet considering the remaining threats

to Israels securitymilitant groups
the picture grows darker. At the moment,
Hezbollah and ISIS are too busy fighting
each other in Syria to think much about
Israel. But both groups have declared their
intention to attack it in the future. Once
Syrias civil war finally ends, Hezbollah
will probably need time to regroup and
so will hold off on attacking Israel; ISIS
will likely act on its threats sooner.
Over the last ten years, Hezbollah
has amassed an arsenal of between 100,000
and 150,000 rockets and missiles. During
the 2006 war in Lebanon, the group
launched some 4,200 of such projectiles
at Israeli towns and cities. Most of them
missed, but they still killed 42 Israeli
civilians and provoked a massive military
responsea sign that Hezbollah had
managed to exploit Israels extreme
sensitivity to casualties. Since then,
the groups leaders have pledged to up
the ante in any future conflict. Should
Israel attack again, they say, they will
turn Lebanese territory into a death trap
for IDF forces; Israeli officials contend
that Hezbollah would hit Israeli towns
and infrastructure with as many as 1,500
rockets per day and launch cross-border
raids on Israeli villages and military
On guard: an Israeli soldier in northern Israel, April 2016
RON EN ZVULUN / REUTE RS
installations. Using this combination of

asymmetric tactics, Hezbollah believes
that it will force Israel into a stalemate
an outcome Hezbollah could then present
as a victory, given the IDFs enormous
advantages.
At the beginning of this year, Hassan
Nasrallah, Hezbollahs secretary-general,
claimed that the group plans to supplement this approach with still new tactics.
In the event of an Israeli attack, he
promised, Hezbollah will strike Israeli
nuclear sites and fire rockets at chemical
storage tanks in Haifa, where much of
Israels heavy industry is located. (Nasrallah
has also claimed that Hezbollah would
invade the Galilee, the Israeli region
closest to the Lebanese border.) Although
Hezbollah may prove too weak to deliver
on such threats in the face of an all-out
Israeli invasion, the group clearly poses
a more serious threat than it did a few
years ago. Despite the heavy casualties
Hezbollah has sustained in Syria, its

commanders will emerge from the
conflict there with valuable combat
experience that they could use against
the IDF. After the Syrian civil war ends,
Hezbollah and its Iranian patrons will
no doubt still view Israel as the regions
major source of evil. But because the
group will likely be reeling from that
bloody conflict, it will probably not
attack immediately; rather, it will wait
months or even years for the right
moment to strike.
Should Hezbollah unleash its promised barrage of rocket attacks on Israel,
the mayhem would bring civilian life
there to a virtual halt, putting the government under enormous public pressure
to stop the attacks. To do so, it would
likely send tens of thousands of ground
troops deep into Lebanon and carry out
aggressive air strikes against Hezbollahs
bases there. But since Hezbollah has
July/August 2016
45
Amos Harel
built its bases in densely populated

areas, the IDF would likely kill many
Lebanese civilians in the process. The
Israeli government would thus find
itself in a bind, facing intense domestic
demands for rapid action on the one
hand and international condemnation
for its tactics on the other. To make
matters worse, the IDF would be unlikely
to achieve a decisive victory: even under
a heavy offensive, Hezbollah would still
be able to fire a large number of rockets
at Israel.
Israels current military leaders
recognize this dilemma, but they also
contend that against massive rocket fire,
there would probably be no alternative
to an IDF ground maneuver in Lebanon.
The goal of inflicting massive military
destruction on Lebanon would be to
deter Hezbollah from attacking for at
least a decade after the end of a potential conflict.
As for ISIS, it represents a significant
threat to Israel, but it is not as dangerous as Hezbollah. ISIS has already sent
some of its foreign fighters home to
Europe to attack Jewish targets there
and has repeatedly threatened to attack
Israel from both the Egyptian and the
Syrian border. It will likely try to do
so soon, since doing so would give it a
massive PR boost. To prepare for that
possibility, the IDF has deployed more
forces to both borders and strengthened
its fences there; it has also stepped up
intelligence gathering on the group.
The Palestinian territories, meanwhile, present their own set of problems.
Since at least 2007, when Hamas took
over Gaza by force the year after it
won elections there, the IDF has worked
closely with the Palestinian Authority,
which still governs the West Bank, to
46
counter the group. In return for the

PAs cooperation, the Israeli government
has generally not intervened in the PAs
domestic affairs and has allowed the
West Bank to enjoy a modest economic
recovery. At the same time, more and
more Israeli leaders have abandoned
talk of a permanent peace and have
started focusing on how to manage,
rather than resolve, the conflict.
Yet Israels strategy has recently run
into serious problems. During Israels
2014 military campaign against Hamas,
the IDF aggressively bombed Gaza in
order to stop the groups rocket fire and
destroy the tunnels it had dug under
the border. Israel even sent in ground
troops to kill Hamas fighters and attack
its military infrastructure near the
border with Israel. The death toll
1,483 Palestinian civilians, 722 Palestinian fighters, and 72 Israelis, 66 of
them soldiers, were killed, according to
the UNled to intense Western criticism
of Israels tactics as unnecessarily brutal.
In Gaza, the IDF faces the same
dilemma as in Lebanon: stopping enemy
attacks seems to require Israeli offensives
that kill many civilians. Worse, it appears
that another conflict with Hamas may
be in the offing. Lacking the support
from Egypt it once enjoyed and facing
public discontent as everyday life in
Gaza becomes increasingly miserable,
the militant group is feeling pressured,
which might encourage it to begin
another round of escalation with Israel.
ARMY AND NATION
Not only has Israels military had to

contend with shifting external threats;
it has also had to grapple with changes
in its own society. Until at least the
mid-1980s, Israel saw itself as struggling
for survival. Most Israeli men considered combat service a national necessity
and a personal aspiration, and most
women were content to serve in the IDF
in noncombat support roles. For the
first few decades after the Holocaust,
most Israelis thought that spending
time in uniform and suffering military
casualties were a worthwhile price to
pay for protecting the country.
Since the 1980s, however, that
sentiment has diminished somewhat.
Many Israelis began to disapprove of
the occupation of the Gaza Strip and
the West Bank and to question their
countrys actions in the 1982 war with
Lebanon and in the first intifada, which
began in 1987. Then, in the early 1990s,
came the Oslo Accords, which were
designed to settle the Israeli-Palestinian
conflict once and for all; at the same time,
Israel deepened its security, economic,
and cultural ties to the United States
and some western European countries.
Many Israelis became convinced that
their country might finally break the
pattern of seemingly endless conflict.
That daydream was shattered by the
assassination of Yitzhak Rabin, Israels
then prime minister, in 1995, and by
the second intifada, which lasted from
2000 to 2005. Yet many Israelis retained
their skepticism over the value of their
countrys military actions. Israel has
now become the kind of society that
the military strategist Edward Luttwak
might call post-heroicone that is
less willing to risk the lives of its young
people in wars that segments of the
population do not consider absolutely
necessary. Some Israelis have also become
less comfortable with enemy civilian
deaths, in part out of concern for their
countrys international reputation.
At the same time, the militarys demographic makeup has started to change.
Today, only 73 percent of eligible Jewish
Israeli men and 58 percent of eligible
Jewish Israeli women serve in the IDFa
historic low in a country with a longstanding policy of mandatory military
service for most Jews. Many of the Jewish
men who dont serve are ultra-Orthodox
and non-Zionist; under a long-standing
deal with the government, they are
exempted from service so that they can
continue their religious studies. Jewish
women, meanwhile, can opt out of
service simply by declaring themselves
religious, even if they are Zionists and
arent ultra-Orthodox. Such exemptions
frustrate much of the secular population,
especially the parents of military-age
Israelis, who feel that the rules place an
undue burden on those willing to serve.
Since 2014, the state has required several
thousand highly religious yeshiva students
to enlist each year, and the students
have generally complied. But popular
tension over the exemptions seems set
to continue.
Another major change that has
occurred in recent years is the
increasing reluctance of liberal secular
Jews to volunteer to serve as officers
and in combat units. A growing number
of mostly right-wing religious Zionists
have stepped in to fill these gaps, coming
to dominate the ranks of the IDFs elite
combat groups. Between 1990 and 2010,
the percentage of religious junior officers
in infantry units rose from 2.5 percent
to somewhere between 35 percent and
40 percent. This changing balance raises
a number of potential problems. It is
conceivable, for example, that units
staffed by religious, right-wing Israelis
might not obey an order to dismantle
July/August 2016
47
Amos Harel
Jewish settlements in the West Bank.

The IDF dismantled such settlements
during Israels withdrawal from the
Gaza Strip in 2005, and during that
operation, some 60 Israeli soldiers
refused to take orders from their
superiors; a withdrawal from the West
Bank, where there are far more settlers
than there were in Gaza before 2005,
could pose a greater challenge. Highly
religious male soldiers may also have
problems interacting with their female
colleagues: some have already refused
to serve in mixed combat units and have
demanded that women soldiers dress in
modest uniforms. In recent years, the
extent of gender segregation within IDF
units and the degree to which religious
soldiers should be permitted to excuse
themselves from cultural activities that
they consider immoral have been issues
of near-constant debate in Israel; the
IDF appears to be leaning toward secular
approaches to such issues and has faced
growing criticism from rabbis and some
members of the Knesset for doing so.
Israelis have also grown more critical
of the IDFs performance, particularly in
the conflict in Lebanon in 2006 and in
its 2014 military campaign in Gaza;
public opinion polls suggest that most
Israelis believe their country ended
both those conflicts in a draw. Many
taxpayers now have a hard time understanding why a military with an annual
budget of around $8 billion has struggled
to defeat far smaller and less technologically advanced opponents such as
Hamas and Hezbollah. What many of
these critics dont realize, however, is
that decisive victories against such
opponents are hard to achieve. Nevertheless, this gap between the publics
expectations and the militarys ability
48
to defeat unconventional opponents

could become a bigger problem should
another war with Hezbollah break out,
for most Israelis fail to recognize how
much the groups capabilities and
ambitions have grown in recent years.
UNCONVENTIONAL WISDOM
To deal with all these changes, soon

after Eisenkot was appointed chief of
staff, he introduced a five-year plan to
streamline the Israeli military. By 2017,
the IDF expects to reduce its 45,000-strong
officer corps by 5,000; release tens of
thousands of older, unfit, and poorly
trained soldiers from its reserves; and
eliminate many of the armys aging
armored brigades, some of which used
1960s-era Patton tanks until recently.
The Israeli air force has unveiled plans
to get rid of dozens of its 40-year-old
warplanes, including some of its older
F-15s and F-16s, and purchase at least
two squadrons (or around 50 planes) of
new F-35 fighters from the United States.
Like his predecessors, Eisenkot has also
pledged to invest generously in Israels
cyberwarfare and intelligence units.
Unlike his predecessors, however,
Eisenkot has acknowledged that the
IDFs technological prowess may not
be enough to allow it to triumph against
an unconventional enemy. To fill the
gap, he has refocused the armys training
on countering guerilla-style opponents;
updated the structure of its ground
forces by, for example, establishing a
new commando brigade; and revised
its operational plans for defending
Israels borders to prepare elite units
for offensive action. Finally, Israels air
force, army, and intelligence units are
working to improve their ability to
coordinate and share information in
the event of a major conflict with

Hezbollah.
These reforms, while important,
will not help the IDF address its most
immediate challenge, however: the
consequences of the surge in violence
that broke out in Israel and the Palestinian territories last October after
Jewish radicals attempted to pray on
the Temple Mountan area known to
Muslims as the Noble Sanctuary and
that the Israeli government and Muslim
leaders have reserved for Muslim prayer
since 1967. In the intervening months,
young Palestinians have carried out a
string of lone-wolf attacks, ramming
cars into Israeli pedestrians and soldiers
or stabbing them in the streets. By early
May, the assailants had killed more than
30 Israelis; the IDF, meanwhile, had
killed more than 175 alleged Palestinian
attackers and arrested around 2,500
more Palestinians.
So far, Israel has avoided the
collective punishments, such as denying
Palestinians permits to work in Israel,
that it employed during the first and
second intifadas. The IDF has also
insisted on maintaining its cooperation
with the PAs security agencies. In the
months after October, Israels security
agencies began to foil an increasing
number of attacks, mostly by monitoring
social media. The PA has unveiled a
campaign to dissuade high school
students from joining the conflict, and
in February, it started preemptively
arresting potential assailants.
None of this has diminished the
anxiety inside Israel, however, and the
attacks have provoked hysterical and
sometimes racist responses from both
civilians and officials. Even Eisenkot
has become a target of this vitriol: in
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49
Amos Harel
January, for example, when he insisted

that the army adhere to its rules of
engagement in order to avoid unnecessary deaths, he was severely criticized,
not just by right-wing backbenchers in
the Knesset but also by some ministers
in the governing Likud Party.
The debate turned even uglier in late
March after a soldier was videotaped
shooting a Palestinian assailant in the
head as he lay wounded on the ground.
The Israeli army charged the soldier
with manslaughter. Right-wing legislators and nationalist soccer hooligans
held a heated demonstration outside
the military court near the southern
city of Ashkelon. Posters portraying
Eisenkot and then Defense Minister
Moshe Yaalon as traitors appeared around
the Kirya, the IDFs Tel Aviv headquarters. But Eisenkot did not crack under
the pressure: the soldiers trial began in
early May, and Eisenkot has insisted that
he alone is responsible for defining the
militarys rules of engagement.
Eisenkots deputy, Major General
Yair Golan, got into even worse trouble
a few days later in May, on Israels
Holocaust Remembrance Day, when he
gave a speech warning of increasingly
racist and violent trends in Israeli society.
By claiming that he recognized some
similarities between developments in
contemporary Israel and the revolting
processes that occurred in Europe in
general, and particularly in Germany . . .
70, 80, and 90 years agoan allusion to
the Nazi periodGolan caused a massive
scandal. Right-wing ministers demanded
his resignation, and Netanyahu publicly
reprimanded him for cheapen[ing] the
Holocaust. Golan will remain in office,
but his chances of becoming Eisenkots
successor in 2019 now seem diminished.
50
(Yaalon resigned on May 20, saying

that he strongly disagreed with Netanyahus government on moral and
professional issues.)
All of this has left Eisenkot with
two main challenges: defending the
army and its code of ethics from both
left- and right-wing critics and preparing it for war on several different
and uncertain fronts. So far, he has
managed the tasks well. But he increasingly finds himself at odds with many
Israeli citizens, with conservative politicians, and, perhaps most important,
with some of his own soldiers, who
prefer to shoot Palestinian attackers
first and ask questions later. At the
very time the IDF should be retooling
itself to confront a new set of external
threats, it has found itself thrust into a
new and uncomfortable role as one of
the last gatekeepers of Israels
democracy.
Why the Status Quo Is

Sustainable
Martin Kramer
as the feud between U.S.

President Barack Obama
and Israeli Prime Minister
Benjamin Netanyahu, first over settlements and then over Iran, a watershed?
Netanyahu, it is claimed, turned U.S.
support of Israel into a partisan issue.
Liberals, including many American
Jews, are said to be fed up with Israels
occupation, which will mark its 50th
anniversary next year. The weakening
of Israels democratic ethos is supposedly undercutting the shared values
argument for the relationship. Some say
Israels dogged adherence to an unsustainable status quo in the West Bank
has made it a liability in a region in the
throes of change. Israel, it is claimed, is
slipping into pariah status, imposed by the
global movement for Boycott, Divestment,
and Sanctions (BDS).
Biblical-style lamentations over Israels
final corruption have been a staple of the
states critics and die-hard anti-Zionists
for 70 years. Never have they been so
detached from reality. Of course, Israel
MARTIN KRAMER is President of Shalem
College, in Jerusalem, and the author of the
forthcoming book The War on Error: Israel,
Islam, and the Middle East.
July/August 2016
51
Israel and the

Post-American
Middle East
has changeddecidedly for the better. By

every measure, Israel is more globalized,
prosperous, and democratic than at any
time in its history. As nearby parts of
the Middle East slip under waves of
ruthless sectarian strife, Israels minorities rest secure. As Europe staggers
under the weight of unwanted Muslim
migrants, Israel welcomes thousands
of Jewish immigrants from Europe. As
other Mediterranean countries struggle
with debt and unemployment, Israel
boasts a growing economy, supported
by waves of foreign investment.
Politically, Netanyahus tenure has
been Israels least tumultuous. Netanyahu has served longer than any other
Israeli prime minister except David
Ben-Gurion, yet he has led Israel in only
one ground war: the limited Operation
Protective Edge in Gaza in 2014. Id
feel better if our partner was not the
trigger-happy Netanyahu, wrote the New
York Times columnist Maureen Dowd
four years ago. But Netanyahu hasnt
pulled triggers, even against Iran. The
Israeli electorate keeps returning him to
office precisely because he is risk averse:
no needless wars, but no ambitious peace
plans either. Although this may produce
overwhelming frustration in Obamas
White House, in Vice President Joe Bidens
scolding phrase, it suits the majority of
Israeli Jews just fine.
Netanyahus endurance fuels the
frustration of Israels diminished left,
too: thwarted at the ballot box, they
comfort themselves with a false notion
that Israels democracy is endangered.
The right made similar claims 20 years
ago, culminating in the assassination of
Prime Minister Yitzhak Rabin. Antidemocratic forces exist in all democracies,
but in Israel, they are either outside the
Martin Kramer
system or confined in smaller parties,

Jewish and Arab alike. There is no
mechanism by which an outlier could
capture one of the main political parties
in a populist upsurge, as now seems
likely in the United States. Under comparable pressures of terrorism and war,
even old democracies have wavered,
but Israels record of fair, free elections
testifies to the depth of its homegrown
democratic ethos, reinforced by a vigorous press and a vigilant judiciary.
Israel is also more secure than ever.
In 1948, only 700,000 Jews faced the
daunting challenge of winning independence against the arrayed armies of the
Arab world. Ben-Gurions top commanders warned him that Israel had
only a 50-50 chance of victory. Today,
there are over six million Israeli Jews,
and Israel is among the worlds most
formidable military powers. It has a
qualitative edge over any imaginable
combination of enemies, and the
ongoing digitalization of warfare has
played precisely to Israels strengths.
The Arab states have dropped out of
the competition, leaving the field to
die-hard Islamists on Israels borders.
They champion resistance, but their
primitive rocketry and tunnel digging
are ineffective. The only credible threat
to a viable Israel would be a nuclear
Iran. No one doubts that if Iran ever
breaks out, Israel could deploy its own
nuclear deterrent, independent of any
constraining alliance.
And what of the Palestinians? There
is no near solution to this enduring
conflict, but Israel has been adept at
containing its effects. There is occupied
territory, but there is also unoccupied
territory. Israel maintains an over-thehorizon security footprint in most of
52
the West Bank; Israeli-Palestinian

security cooperation fills in most of the
gaps. The Palestinian Authority, in the
words of one wag, has become a miniJordan, buttressed by a combination
of foreign aid, economic growth, and
the usual corruption. By the standards
of todays Middle East, the IsraeliPalestinian conflict remains stable. It
is prosecuted mostly at a distance,
through maneuvering in international
bodies and campaigns for and against
BDS. These are high-decibel, low-impact
confrontations. Yossi Vardi, Israels
most famous high-tech entrepreneur,
summarizes the mainstream Israeli
view: Im not at all concerned about
the economic effect of BDS. We have
been subject to boycotts before. And
they were much worse.
Every political party in Israel has its
own preferred solution to the conflict,
but no solution offers an unequivocal
advantage over the status quo. The
occupation as it is now can last forever,
and it is better than any alternative
this opinion, issued in April by Benny
Ziffer, the literary editor of the liberal,
left-wing Haaretz, summarizes the present
Israeli consensus. It is debatable whether
the two-state option has expired. But the
reality on the ground doesnt resemble
one state either. Half a century after the
1967 war, only five percent of Israelis live
in West Bank settlements, and half of
them live in the five blocs that would be
retained by Israel in any two-state scenario.
In the meantime, Egypt, Jordan, Saudi
Arabia, and the United Arab Emirates
are all shaking hands with Israel, sometimes before the cameras. Israel and
Russia are assiduously courting each other;
still farther afield, Israels relations with
China and India are booming. The
Israel and the Post-American Middle East
Mind the gap: Hillary Clinton and Benjamin Netanyahu in Jerusalem, November 2012
BA Z R AT N E R / R E U T E R S
genuine pariah of the Middle East is

the Syrian regime, which never deigned
to make peace with Israel. This last
so-called steadfast Arab state is consumed
from within by a great bloodbath; its
nuclear project and massive stocks of
chemical weapons are a distant memory.
Israel faces all manner of potential
threats and challenges, but never has it
been more thoroughly prepared to meet
them. The notion popular among some
Israeli pundits that their compatriots
live in a perpetual state of paralyzing
fear misleads both Israels allies and its
adversaries. Israels leaders are cautious
but confident, not easily panicked, and
practiced in the very long game that
everyone plays in the Middle East.
Nothing leaves them so unmoved as
the vacuous mantra that the status quo
is unsustainable. Israels survival has
always depended on its willingness to
sustain the status quo that it has created,
driving its adversaries to resignation

and compromise. This is more an art
than a science, but such resolve has
served Israel well over time.
THE SUPERPOWER RETREATS
Still, there is a looming cloud on Israels

horizon. It isnt Irans delayed nukes,
academes threats of boycott, or Palestinian maneuvers at the UN. It is a huge
power vacuum. The United States, after
a wildly erratic spree of misadventures,
is backing out of the region. It is cutting
its exposure to a Middle East that has
consistently defied American expectations and denied successive American
presidents the mission accomplished
moments they crave. The disengagement began before Obama entered the
White House, but he has accelerated it,
coming to see the Middle East as a region
to be avoided because it could not be
fixednot on his watch, and not for a
July/August 2016
53
Martin Kramer
generation to come. (This was the

bottom-line impression of the journalist
Jeffrey Goldberg, to whom Obama granted
his legacy interview on foreign policy.)
If history is precedent, this is more
than a pivot. Over the last century, the
Turks, the British, the French, and the
Russians each had their moment in the
Middle East, but prolonging it proved
costly as their power ebbed. They gave
up the pursuit of dominance and settled
for influence. A decade ago, in the pages
of this magazine, Richard Haass, the
president of the Council on Foreign
Relations, predicted that the United
States had reached just this point: The
American era in the Middle East, he
announced, . . . has ended. He went
on: The United States will continue to
enjoy more influence in the region than
any other outside power, but its influence will be reduced from what it once
was. That was a debatable proposition
in 2006; now in 2016, Obama has made
it indisputable.
There are several ways to make a
retreat seem other than it is. The Obama
administrations tack has been to create
the illusion of a stable equilibrium, by
cutting the United States commitments
to its allies and mollifying its adversaries.
And so, suddenly, none of the United
States traditional friends is good enough
to justify its full confidence. The great
power must conceal its own weariness,
so it pretends to be frustrated by the
inconstancy of free riders. The resulting complaints about Israel (as well as
Egypt and Saudi Arabia) serve just such
a narrative.
Israels leaders arent shy about warning
against the consequences of this posture,
but they are careful not to think out loud
about Israeli options in a post-American
54
Middle East. Israel wants a new memorandum of understanding with the

United States, the bigger the better, as
compensation for the Iran nuclear deal.
It is in Israels interest to emphasize
the importance of the U.S.-Israeli
relationship as the bedrock of regional
stability going forward.
But how far forward is another
question. Even as Israel seeks to deepen
the United States commitment in the
short term, it knows that the unshakable
bond wont last in perpetuity. This is a
lesson of history. The leaders of the
Zionist movement always sought to ally
their project with the dominant power
of the day, but they had lived through
too much European history to think
that great power is ever abiding. In the
twentieth century, they witnessed the
collapse of old empires and the rise of
new ones, each staking its claim to the
Middle East in turn, each making
promises and then rescinding them.
When the United States turn came,
the emerging superpower didnt rush
to embrace the Jews. They were alone
during the 1930s, when the gates of
the United States were closed to them.
They were alone during the Holocaust,
when the United States awoke too late.
They were alone in 1948, when the United
States placed Israel under an arms
embargo, and in 1967, when a U.S.
president explicitly told the Israelis that
if they went to war, they would be alone.
After 1967, Israel nestled in the Pax
Americana. The subsequent decades
of the special relationship have so
deepened Israels dependence on the
United States in the military realm that
many Israelis can no longer remember
how Israel managed to survive without
all that U.S. hardware. Israels own armies
of supporters in the United States,

especially in the Jewish community,
reinforce this mindset as they assure
themselves that were it not for their
lobbying efforts in Washington, Israel
would be in mortal peril.
But the Obama administration has
given Israelis a preview of just how the
unshakable bond is likely to be shaken.
This prospect might seem alarming to
Israels supporters, but the inevitable
turn of the wheel was precisely the
reason Zionist Jews sought sovereign
independence in the first place. An
independent Israel is a guarantee against
the day when the Jews will again find
themselves alone, and it is an operating
premise of Israeli strategic thought
that such a day will come.
ISRAEL ALONE
This conviction, far from paralyzing

Israel, propels it to expand its options,
diversify its relationships, and build its
independent capabilities. The Middle
East of the next 50 years will be different from that of the last 100. There
will be no hegemony-seeking outside
powers. The costs of pursuing fullspectrum dominance are too high; the
rewards are too few. Outside powers
will pursue specific goals, related to oil
or terrorism. But large swaths of the
Middle East will be left to their fate,
to dissolve and re-form in unpredictable
ways. Israel may be asked by weaker
neighbors to extend its security net to
include them, as it has done for decades
for Jordan. Arab concern about Iran is
already doing more to normalize Israel
in the region than the ever-elusive and
ever-inconclusive peace process. Israel,
once the fulcrum of regional conflict,
will loom like a pillar of regional
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55
Martin Kramer
stabilitynot only for its own people

but also for its neighbors, threatened
by a rising tide of political fragmentation,
economic contraction, radical Islam, and
sectarian hatred.
So Israel is planning to outlast the
United States in the Middle East.
Israelis roll their eyes when the United
States insinuates that it best understands
Israels genuine long-term interests,
which Israel is supposedly too traumatized
or confused to discern. Although Israel
has made plenty of tactical mistakes, it
is hard to argue that its strategy has
been anything but a success. And given
the wobbly record of the United States
in achieving or even defining its interests
in the Middle East, it is hard to say the
same about U.S. strategy. The Obama
administration has placed its bet on the
Iran deal, but even the deals most ardent
advocates no longer claim to see the
arc of history in the Middle East. In
the face of the collapse of the Arab Spring,
the Syrian dead, the millions of refugees,
and the rise of the Islamic State, or ISIS,
who can say in which direction the arc
points? Or where the Iran deal will lead?
One other common American
mantra deserves to be shelved. Precisely because of our friendship, said
Obama five years ago, it is important
that we tell the truth: the status quo is
unsustainable, and Israel too must act
boldly to advance a lasting peace. It is
time for the United States to abandon
this mantra, or at least modify it. Only
if Israels adversaries conclude that Israel
can sustain the status quo indefinitely
Israels military supremacy, its economic
advantage, and, yes, its occupationis
there any hope that they will reconcile
themselves to Israels existence as a
Jewish state. Statements like Obamas
56
dont sway Israels government, which

knows better, but they do fuel Arab and
Iranian rejection of Israel among those
who believe that the United States no
longer has Israels back. For Israels
enemies, drawing the conclusion that
Israel is thus weak would be a tragic
mistake: Israel is well positioned to
sustain the status quo all by itself. Its
long-term strategy is predicated on it.
A new U.S. administration will offer
an opportunity to revisit U.S. policy, or at
least U.S. rhetoric. One of the candidates,
Hillary Clinton, made a statement as
secretary of state in Jerusalem in 2010 that
came closer to reality and practicality.
The status quo is unsustainable, she
said, echoing the usual line. But she added
this: Now, that doesnt mean that it cant
be sustained for a year or a decade, or two
or three, but fundamentally, the status
quo is unsustainable. Translation: the
status quo may not be optimal, but it is
sustainable, for as long as it takes.
As the United States steps back from
the Middle East, this is the message
Washington should send if it wants to
assist Israel and other U.S. allies in
filling the vacuum it will leave behind.
ESSAYS
Voters have risen up
against what they see as a
corrupt, self-dealing
Establishment, turning to
radical outsiders in the
hopes of a purifying cleanse.
Francis Fukuyama

Francis Fukuyama
58

114
JIM YOUNG / REUTERS

The Truth About American
John J. Mearsheimer and Stephen M. Walt 70 Unemployment
Jason Furman
127
Douglas A. Irwin
84 Human Work in the Robotic Future
Andrew McAfee and Erik Brynjolfsson 139
NATOs Next Act
Philip M. Breedlove
96 Democracy in Decline
Larry Diamond
151
106 The Innovative Finance Revolution
Georgia Levenson Keohane and
Saadia Madsbjerg
161
American Political Decay

or Renewal?
The Meaning of the 2016 Election
Francis Fukuyama
wo years ago, I argued in these pages that America was

suffering from political decay. The countrys constitutional
system of checks and balances, combined with partisan
polarization and the rise of well-financed interest groups, had combined to yield what I labeled vetocracy, a situation in which it was
easier to stop government from doing things than it was to use government to promote the common good. Recurrent budgetary crises,
stagnating bureaucracy, and a lack of policy innovation were the hallmarks of a political system in disarray.
On the surface, the 2016 presidential election seems to be bearing
out this analysis. The once proud Republican Party lost control of its
nominating process to Donald Trumps hostile takeover and is riven
with deep internal contradictions. On the Democratic side, meanwhile, the ultra-insider Hillary Clinton has faced surprisingly strong
competition from Bernie Sanders, a 74-year-old self-proclaimed democratic socialist. Whatever the issuefrom immigration to financial
reform to trade to stagnating incomeslarge numbers of voters on
both sides of the spectrum have risen up against what they see as a
corrupt, self-dealing Establishment, turning to radical outsiders in
the hopes of a purifying cleanse.
In fact, however, the turbulent campaign has shown that American
democracy is in some ways in better working order than expected.
Whatever one might think of their choices, voters have flocked to the
polls in state after state and wrested control of the political narrative
FRANCIS FUKUYAMA is a Senior Fellow at the Freeman Spogli Institute for International
Studies and Director of FSIs Center on Democracy, Development, and the Rule of Law at
Stanford University. Follow him on Twitter @FukuyamaFrancis.
58
from organized interest groups and oligarchs. Jeb Bush, the son and
brother of presidents who once seemed the inevitable Republican
choice, ignominiously withdrew from the race in February after
having blown through more than $130 million (together with his
super PAC). Sanders, meanwhile, limiting himself to small donations
and pledging to disempower the financial elite that supports his
opponent, has raised even more than Bush and nipped at Clintons
heels throughout.
The real story of this election is that after several decades, American
democracy is finally responding to the rise of inequality and the
economic stagnation experienced by most of the population. Social
class is now back at the heart of American politics, trumping other
cleavagesrace, ethnicity, gender, sexual orientation, geographythat
had dominated discussion in recent elections.
The gap between the fortunes of elites and those of the rest of the
public has been growing for two generations, but only now is it
coming to dominate national politics. What really needs to be explained
is not why populists have been able to make such gains this cycle but
why it took them so long to do so. Moreover, although it is good to
know that the U.S. political system is less ossified and less in thrall
to monied elites than many assumed, the nostrums being hawked by
the populist crusaders are nearly entirely unhelpful, and if embraced,
they would stifle growth, exacerbate malaise, and make the situation
worse rather than better. So now that the elites have been shocked
out of their smug complacency, the time has come for them to devise
more workable solutions to the problems they can no longer deny
or ignore.
THE SOCIAL BASIS OF POPULISM
In recent years, it has become ever harder to deny that incomes have
been stagnating for most U.S. citizens even as elites have done better
than ever, generating rising inequality throughout American society.
Certain basic facts, such as the enormously increased share of
national wealth taken by the top one percent, and indeed the top
0.1 percent, are increasingly uncontested. What is new this political
cycle is that attention has started to turn from the excesses of the
oligarchy to the straitened circumstances of those left behind.
Two recent booksCharles Murrays Coming Apart and Robert
Putnams Our Kidslay out the new social reality in painful detail.
July/August 2016
59
Francis Fukuyama
Murray and Putnam are at opposite ends of the political spectrum,

one a libertarian conservative and the other a mainstream liberal, yet
the data they report are virtually identical. Working-class incomes
have declined over the past generation, most dramatically for white
men with a high school education or less. For this group, Trumps
slogan, Make America Great Again! has real meaning. But the
pathologies they suffer from go much deeper and are revealed in
data on crime, drug use, and single-parent families.
Back in the 1980s, there was a broad national conversation about
the emergence of an African American underclassthat is, a mass of
underemployed and underskilled people whose poverty seemed selfreplicating because it led to broken families that were unable to
transmit the kinds of social norms and behaviors required to compete
in the job market. Today, the white working class is in virtually the
same position as the black underclass was back then.
During the run-up to the primary in New Hampshirea state
that is about as white and rural as any in the countrymany Americans
were likely surprised to learn that voters most important concern
there was heroin addiction. In fact, opioid and methamphetamine
addiction have become as epidemic in rural white communities in
states such as Indiana and Kentucky as crack was in the inner city a
generation ago. A recent paper by the economists Anne Case and
Angus Deaton showed that the death rates for white non-Hispanic
middle-aged men in the United States rose between 1999 and 2013,
even as they fell for virtually every other population group and in
every other rich country. The causes of this increase appear to have
been suicide, drugs, and alcoholnearly half a million excess deaths
over what would have been expected. And crime rates for this group
have skyrocketed as well.
This increasingly bleak reality, however, scarcely registered with
American elitesnot least because over the same period, they
themselves were doing quite well. People with at least a college
education have seen their fortunes rise over the decades. Rates of
divorce and single-parent families have decreased among this group,
neighborhood crime has fallen steadily, cities have been reclaimed
for young urbanites, and technologies such as the Internet and social
media have powered social trust and new forms of community engagement. For this group, helicopter parents are a bigger problem
than latchkey children.
60
THE FAILURE OF POLITICS
Given the enormity of the social shift that has occurred, the real
question is not why the United States has populism in 2016 but why
the explosion did not occur much earlier. And here there has indeed
been a problem of representation in American institutions: neither
political party has served the declining group well.
In recent decades, the Republican Party has been an uneasy coalition
of business elites and social conservatives, the former providing
money, and the latter primary votes. The business elites, represented
by the editorial page of The Wall Street Journal, have been principled
advocates of economic liberalism: free markets, free trade, and open
immigration. It was Republicans who provided the votes to pass
trade legislation such as the North American Free Trade Agreement
and the recent trade promotion authority (more commonly known as
fast track). Their business backers clearly benefit from both the
import of foreign labor, skilled and unskilled, and a global trading
system that allows them to export and invest around the globe. ReJuly/August 2016
61
Francis Fukuyama
publicans pushed for the dismantling of the Depression-era system

of bank regulation that laid the groundwork for the subprime meltdown and the resulting financial crisis of 2008. And they have been
ideologically committed to cutting taxes on wealthy Americans, undermining the power of labor unions, and reducing social services
that stood to benefit the less well-off.
This agenda ran directly counter to the interests of the working
class. The causes of the working class decline are complex, having to
do as much with technological change as with factors touched by
public policy. And yet it is undeniable that the pro-market shift
promoted by Republican elites in recent decades has exerted
downward pressure on working-class
incomes, both by exposing workers to
American democracy is
more ruthless technological and global
finally responding to the
competition and by paring back various
protections and social benefits left
economic stagnation of
over from the New Deal. (Countries
most of the population.
such as Germany and the Netherlands,
which have done more to protect their
workers, have not seen comparable increases in inequality.) It should
not be surprising, therefore, that the biggest and most emotional
fight this year is the one taking place within the Republican Party, as
its working-class base expresses a clear preference for more nationalist
economic policies.
The Democrats, for their part, have traditionally seen themselves
as champions of the common man and can still count on a shrinking
base of trade union members to help get out the vote. But they have
also failed this constituency. Since the rise of Bill Clintons third
way, elites in the Democratic Party have embraced the post-Reagan
consensus on the benefits of free trade and immigration. They were
complicit in the dismantling of bank regulation in the 1990s and have
tried to buy off, rather than support, the labor movement over its
objections to trade agreements.
But the more important problem with the Democrats is that the
party has embraced identity politics as its core value. The party has
won recent elections by mobilizing a coalition of population segments:
women, African Americans, young urbanites, gays, and environmentalists. The one group it has completely lost touch with is the
same white working class that was the bedrock of Franklin Roosevelts
62
Essential reading from berghahn

THE MERKEL REPUBLIC
An Appraisal
Edited by Eric Langenbacher

Reveals the fascinating intricacies and paradoxes
of German political lifethe book is a must-read
for those who seek to get behind the headlines
about the chancellor. Foreign Affairs
THE DECOLONIAL MANDELA
Peace, Justice and the Politics of Life
Sabelo Ndlovu-Gatsheni
This is a completely original contribution to our
understanding of Mandela essential reading
across multiple disciplines.
Ramon Grosfoguel, University of California, Berkeley
Paperback Original, September 2015
Paperback Original, March 2016
THE DREAM IN ISLAM
journals
From Qur'anic Tradition to Jihadist

Inspiration
ISRAEL STUDIES REVIEW
Iain R. Edgar
Edgar has done us all a tremendous serviceThe
dramatic appeal of Edgars book comes with his
groundbreaking account as a source of inspiration
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militant jihadist followers. Dream Time Magazine
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New Deal coalition. The white working class began voting Republican in the 1980s over cultural issues such as patriotism, gun rights,
abortion, and religion. Clinton won back enough of them in the
1990s to be elected twice (with pluralities each time), but since
then, they have been a more reliable constituency for the Republican
Party, despite the fact that elite Republican economic policies are
at odds with their economic interests. This is why, in a Quinnipiac
University survey released in April, 80 percent of Trumps supporters polled said they felt that the government has gone too far
in assisting minority groups, and 85 percent agreed that America
has lost its identity.
The Democrats fixation with identity explains one of the great
mysteries of contemporary American politicswhy rural workingclass whites, particularly in southern states with limited social services, have flocked to the banner of the Republicans even though they
have been among the greatest beneficiaries of Republican-opposed
programs, such as Barack Obamas Affordable Care Act. One reason
is their perception that Obamacare was designed to benefit people
other than themselvesin part because Democrats have lost their
ability to speak to such voters (in contrast to in the 1930s, when
southern rural whites were key supporters of Democratic Party welfare state initiatives such as the Tennessee Valley Authority).
THE END OF AN ERA?
Trumps policy pronouncements are confused and contradictory,

coming as they do from a narcissistic media manipulator with no
clear underlying ideology. But the common theme that has made him
attractive to so many Republican primary voters is one that he shares
to some extent with Sanders: an economic nationalist agenda designed to protect and restore the jobs of American workers. This
explains both his opposition to immigrationnot just illegal immigration but also skilled workers coming in on H1B visasand his
condemnation of American companies that move plants abroad to
save on labor costs. He has criticized not only China for its currency
manipulation but also friendly countries such as Japan and South
Korea for undermining the United States manufacturing base. And
of course he is dead set against further trade liberalization, such as
the Trans-Pacific Partnership in Asia and the Transatlantic Trade and
Investment Partnership with Europe.
July/August 2016
63
Francis Fukuyama
All of this sounds like total heresy to anyone who has taken a basic
college-level course in trade theory, where models from the Ricardian
one of comparative advantage to the Heckscher-Ohlin factor endowment theory tell you that free trade is a
win-win for trading partners, increasing
The American political
all countries aggregate incomes. And
system will not be fixed
indeed, global output has exploded over
the past two generations, as world trade
unless popular anger is
and investment have been liberalized
linked to good policies.
under the broad framework of the General Agreement on Tariffs and Trade and
then the World Trade Organization, increasing fourfold between 1970
and 2008. Globalization has been responsible for lifting hundreds of
millions of people out of poverty in countries such as China and India
and has generated unfathomable amounts of wealth in the United States.
Yet this consensus on the benefits of economic liberalization, shared
by elites in both political parties, is not immune from criticism. Built
into all the existing trade models is the conclusion that trade
liberalization, while boosting aggregate income, will have potentially
adverse distributional consequencesit will, in other words, create
winners and losers. One recent study estimated that import competition
from China was responsible for the loss of between two million and
2.4 million U.S. jobs from 1999 to 2011.
The standard response from trade economists is to argue that the
gains from trade are sufficient to more than adequately compensate
the losers, ideally through job training that will equip them with new
skills. And thus, every major piece of trade legislation has been
accompanied by a host of worker-retraining measures, as well as a
phasing in of new rules to allow workers time to adjust.
In practice, however, this adjustment has often failed to materialize.
The U.S. government has run 47 uncoordinated federal job-retraining
programs (since consolidated into about a dozen), in addition to
countless state-level ones. These have collectively failed to move
large numbers of workers into higher-skilled positions. This is partly
a failure of implementation, but it is also a failure of concept: it is not
clear what kind of training can transform a 55-year-old assembly-line
worker into a computer programmer or a Web designer. Nor does
standard trade theory take account of the political economy of
investment. Capital has always had collective-action advantages over
64
labor, because it is more concentrated and easier to coordinate. This

was one of the early arguments in favor of trade unionism, which has
been severely eroded in the United States since the 1980s. And capitals advantages only increase with the high degree of capital mobility
that has arisen in todays globalized world. Labor has become more
mobile as well, but it is far more constrained. The bargaining advantages of unions are quickly undermined by employers who can
threaten to relocate not just to a right-to-work state but also to a
completely different country.
Labor-cost differentials between the United States and many developing countries are so great that it is hard to imagine what sorts
of policies could ultimately have protected the mass of low-skilled
jobs. Perhaps not even Trump believes that shoes and shirts should
still be made in America. Every industrialized nation in the world,
including those that are much more committed to protecting their
manufacturing bases, such as Germany and Japan, has seen a decline
in the relative share of manufacturing over the past few decades. And
even China itself is beginning to lose jobs to automation and to
lower-cost producers in places such as Bangladesh and Vietnam.
And yet the experience of a country such as Germany suggests that
the path followed by the United States was not inevitable. German
business elites never sought to undermine the power of their trade
unions; to this day, wages are set across the German economy through
government-sponsored negotiations between employers and unions.
As a result, German labor costs are about 25 percent higher than their
American counterparts. And yet Germany remains the third-largest
exporter in the world, and the share of manufacturing employment in
Germany, although declining, has remained consistently higher than
that in the United States. Unlike the French and the Italians, the
Germans have not sought to protect existing jobs through a thicket of
labor laws; under Chancellor Gerhard Schrders Agenda 2010 reforms,
it became easier to lay off redundant workers. And yet the country
has invested heavily in improving working-class skills through its
apprenticeship program and other active labor-market interventions.
The Germans also sought to protect more of the countrys supply
chain from endless outsourcing, connecting its fabled Mittelstand,
that is, its small and medium-size businesses, to its large employers.
In the United States, in contrast, economists and public intellectuals
portrayed the shift from a manufacturing economy to a postindustrial
July/August 2016
65
Francis Fukuyama
service-based one as inevitable, even something to be welcomed and

hastened. Like the buggy whip makers of old, supposedly, manufacturing workers would retool themselves, becoming knowledge workers in a flexible, outsourced, part-time new economy, where their new
skills would earn them higher wages. Despite occasional gestures,
however, neither political party took the retooling agenda seriously,
as the centerpiece of a necessary adjustment process, nor did they
invest in social programs designed to cushion the working class as it
tried to adjust. And so white workers, like African Americans in earlier decades, were on their own.
The first decade of the century could have played out very differently.
The Chinese today are not manipulating their currency to boost exports;
if anything, they have been trying recently to support the value of the
yuan in order to prevent capital flight. But they certainly did manipulate
their currency in the years following the Asian financial crisis of 199798
and the dot-com crash of 20002001. It would have been entirely feasible for Washington to have threatened, or actually imposed, tariffs
against Chinese imports back then in response. This would have entailed risks: consumer prices would have increased, and interest rates
would have risen had the Chinese responded by not buying U.S. debt.
Yet this possibility was not taken seriously by U.S. elites, for fear that it
would start a slide down the slippery slope of protectionism. As a result, more than two million jobs were lost in the ensuing decade.
A WAY FORWARD?
Trump may have fastened onto something real in American society,

but he is a singularly inappropriate instrument for taking advantage
of the reform moment that this electoral upheaval represents. You
cannot unwind 50 years of trade liberalization by imposing unilateral
tariffs or filing criminal indictments against American multinationals
that outsource jobs. At this point, the United States economy is so
interconnected with that of the rest of the world that the dangers of
a global retreat into protectionism are all too real. Trumps proposals
to abolish Obamacare would throw millions of working-class Americans
off health insurance, and his proposed tax cuts would add more than
$10 trillion to the deficit over the next decade while benefiting only
the rich. The country does need strong leadership, but by an
institutional reformer who can make government truly effective, not
by a personalistic demagogue who is willing to flout established rules.
66
Nonetheless, if elites profess to be genuinely concerned about

inequality and the declining working class, they need to rethink some
of their long-standing positions on immigration, trade, and investment.
The intellectual challenge is to see whether it is possible to back away
from globalization without cratering both the national and the global
economy, with the goal of trading a little aggregate national income
for greater domestic income equality.
Clearly, some changes are more workable than others, with immigration being at the top of the theoretically doable list. Comprehensive
immigration reform has been in the works for more than a decade
now and has failed for two reasons. First, opponents are opposed to
amnesty, that is, giving existing undocumented immigrants a path
to citizenship. But the second reason has to do with enforcement:
critics point out that existing laws are not enforced and that earlier
promises to enforce them have not been kept.
The idea that the government could deport 11 million people from
the country, many of them with children who are U.S. citizens, seems
highly implausible. So some form of amnesty appears inevitable.
Immigration critics are right, however, that the United States has been
very lax in enforcement. Doing this properly would require not a
wall but something like a national biometric ID card, heavy investment
in courts and police, and, above all, the political will to sanction
employers who violate the rules. Moving to a much more restrictive
policy on legal immigration, in which some form of amnesty for existing
immigrants is exchanged for genuine efforts to enforce new and
tougher rules, would not be economically disastrous. When the country
did this before, in 1924, the way was paved, in certain respects, for
the golden age of U.S. equality in the 1940s and 1950s.
It is harder to see a way forward on trade and investment, other than
not ratifying existing deals such as the Trans-Pacific Partnershipwhich
would not be extremely risky. The world is increasingly populated
with economic nationalists, and a course reversal by Washingtonwhich
has built and sustained the current liberal international system
could well trigger a tidal wave of reprisals. Perhaps one place to start
is to figure out a way to persuade U.S. multinationals, which currently
are sitting on more than $2 trillion in cash outside the United States, to
bring their money home for domestic investment. U.S. corporate tax
rates are among the highest in the Organization for Economic Cooperation
and Development; reducing them sharply while eliminating the myriad
July/August 2016
67
Francis Fukuyama
tax subsidies and exemptions that corporations have negotiated for

themselves is a policy that could find support in both parties.
Another initiative would be a massive campaign to rebuild
American infrastructure. The American Society of Civil Engineers
estimates that it would take $3.6 trillion to adequately upgrade the
countrys infrastructure by 2020. The United States could borrow
$1 trillion while interest rates are low and use it to fund a massive
infrastructure initiative that would create huge numbers of jobs while
raising U.S. productivity in the long run. Hillary Clinton has proposed spending $275 billion, but that number is too modest.
But attempts to accomplish either goal would bump into the more
routine dysfunctions of the American political system, where vetocracy
prevents either tax reform or infrastructure investment. The American
system makes it too easy for well-organized interest groups to block
legislation and to capture new initiatives for their own purposes. So
fixing the system to reduce veto points and streamline decisionmaking would have to be part of the reform agenda itself. Necessary
changes should include eliminating both senatorial holds and the
routine use of the filibuster and delegating budgeting and the
formulation of complex legislation to smaller, more expert groups
that can present coherent packages to Congress for up-or-down votes.
This is why the unexpected emergence of Trump and Sanders may
signal a big opportunity. For all his faults, Trump has broken with the
Republican orthodoxy that has prevailed since Ronald Reagan, a
low-tax, small-safety-net orthodoxy that benefits corporations much
more than their workers. Sanders similarly has mobilized the backlash from the left that has been so conspicuously missing since 2008.
Populism is the label that political elites attach to policies supported by ordinary citizens that they dont like. There is of course no
reason why democratic voters should always choose wisely, particularly in an age when globalization makes policy choices so complex.
But elites dont always choose correctly either, and their dismissal of
the popular choice often masks the nakedness of their own positions.
Popular mobilizations are neither inherently bad nor inherently
good; they can do great things, as during the Progressive era and the
New Deal, but also terrible ones, as in Europe during the 1930s. The
American political system has in fact suffered from substantial decay,
and it will not be fixed unless popular anger is linked to wise leadership and good policies. It is still not too late for this to emerge.
68
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The Case for Offshore

Balancing
A Superior U.S. Grand Strategy
or the first time in recent memory, large numbers of Americans

are openly questioning their countrys grand strategy. An April
2016 Pew poll found that 57 percent of Americans agree that
the United States should deal with its own problems and let others
deal with theirs the best they can. On the campaign trail, both the
Democrat Bernie Sanders and the Republican Donald Trump found
receptive audiences whenever they questioned the United States
penchant for promoting democracy, subsidizing allies defense, and
intervening militarilyleaving only the likely Democratic nominee
Hillary Clinton to defend the status quo.
Americans distaste for the prevailing grand strategy should come
as no surprise, given its abysmal record over the past quarter century.
In Asia, India, Pakistan, and North Korea are expanding their nuclear
arsenals, and China is challenging the status quo in regional waters. In
Europe, Russia has annexed Crimea, and U.S. relations with Moscow
have sunk to new lows since the Cold War. U.S. forces are still fighting in Afghanistan and Iraq, with no victory in sight. Despite losing
most of its original leaders, al Qaeda has metastasized across the region. The Arab world has fallen into turmoilin good part due to the
United States decisions to effect regime change in Iraq and Libya and
its modest efforts to do the same in Syriaand the Islamic State, or
ISIS, has emerged out of the chaos. Repeated U.S. attempts to broker
Israeli-Palestinian peace have failed, leaving a two-state solution further
JOHN J. MEARSHEIMER is R. Wendell Harrison Distinguished Service Professor of

Political Science at the University of Chicago.
STEPHEN M. WALT is Robert and Rene Belfer Professor of International Affairs at the
Harvard Kennedy School. Follow him on Twitter @StephenWalt.
70
away than ever. Meanwhile, democracy

has been in retreat worldwide, and the
United States use of torture, targeted
killings, and other morally dubious practices
has tarnished its image as a defender of human
rights and international law.
The United States does not bear sole responsibility for
all these costly debacles, but it has had a hand in most of them. The
setbacks are the natural consequence of the misguided grand strategy
of liberal hegemony that Democrats and Republicans have pursued
for years. This approach holds that the United States must use its
power not only to solve global problems but also to promote a world
order based on international institutions, representative governments,
open markets, and respect for human rights. As the indispensable
nation, the logic goes, the United States has the right, responsibility,
and wisdom to manage local politics almost everywhere. At its core,
liberal hegemony is a revisionist grand strategy: instead of calling on
the United States to merely uphold the balance of power in key regions,
it commits American might to promoting democracy everywhere and
defending human rights whenever they are threatened.
There is a better way. By pursuing a strategy of offshore
balancing, Washington would forgo ambitious efforts to remake
other societies and concentrate on what really matters: preserving U.S. dominance in the Western Hemisphere
and countering potential hegemons in Europe,
Northeast Asia, and the Persian Gulf. Instead of
policing the world, the United States would
encourage other countries to take the lead in
checking rising powers, intervening
itself only when necessary. This does
July/August 2016
71
not mean abandoning the United States position as the worlds sole
superpower or retreating to Fortress America. Rather, by husbanding
U.S. strength, offshore balancing would preserve U.S. primacy far
into the future and safeguard liberty at home.
SETTING THE RIGHT GOALS
The United States is the luckiest great power in modern history. Other
leading states have had to live with threatening adversaries in their
own backyardseven the United Kingdom faced the prospect of an
invasion from across the English Channel on several occasionsbut
for more than two centuries, the United States has not. Nor do distant
powers pose much of a threat, because two giant oceans are in the way.
As Jean-Jules Jusserand, the French ambassador to the United States
from 1902 to 1924, once put it, On the north, she has a weak neighbor;
on the south, another weak neighbor; on the east, fish, and the west,
fish. Furthermore, the United States boasts an abundance of land
and natural resources and a large and energetic population, which have
enabled it to develop the worlds biggest economy and most capable
military. It also has thousands of nuclear weapons, which makes an
attack on the American homeland even less likely.
These geopolitical blessings give the United States enormous latitude
for error; indeed, only a country as secure as it would have the temerity
to try to remake the world in its own image. But they also allow it to
remain powerful and secure without pursuing a costly and expansive
grand strategy. Offshore balancing would do just that. Its principal
concern would be to keep the United States as powerful as possible
ideally, the dominant state on the planet. Above all, that means maintaining hegemony in the Western Hemisphere.
Unlike isolationists, however, offshore balancers believe that there
are regions outside the Western Hemisphere that are worth expending
American blood and treasure to defend. Today, three other areas
matter to the United States: Europe, Northeast Asia, and the Persian
Gulf. The first two are key centers of industrial power and home to
the worlds other great powers, and the third produces roughly 30 percent
of the worlds oil.
In Europe and Northeast Asia, the chief concern is the rise of a
regional hegemon that would dominate its region, much as the United
States dominates the Western Hemisphere. Such a state would have
abundant economic clout, the ability to develop sophisticated weaponry,
72
the potential to project power around the globe, and perhaps even the
wherewithal to outspend the United States in an arms race. Such a
state might even ally with countries in the Western Hemisphere and
interfere close to U.S. soil. Thus, the United States principal aim in
Europe and Northeast Asia should be to maintain the regional balance
of power so that the most powerful state in each regionfor now,
Russia and China, respectivelyremains too worried about its neighbors
to roam into the Western Hemisphere. In the Gulf, meanwhile, the
United States has an interest in blocking the rise of a hegemon that
could interfere with the flow of oil from that region, thereby damaging
the world economy and threatening U.S. prosperity.
Offshore balancing is a realist grand strategy, and its aims are limited.
Promoting peace, although desirable, is not among them. This is not
to say that Washington should welcome conflict anywhere in the
world, or that it cannot use diplomatic or economic means to discourage
war. But it should not commit U.S. military forces for that purpose
alone. Nor is it a goal of offshore balancing to halt genocides, such as
the one that befell Rwanda in 1994. Adopting this strategy would not
preclude such operations, however, provided the need is clear, the
mission is feasible, and U.S. leaders are confident that intervention
will not make matters worse.
HOW WOULD IT WORK?
Under offshore balancing, the United States would calibrate its military
posture according to the distribution of power in the three key regions.
If there is no potential hegemon in sight in Europe, Northeast Asia,
or the Gulf, then there is no reason to deploy ground or air forces
there and little need for a large military establishment at home. And
because it takes many years for any country to acquire the capacity to
dominate its region, Washington would see it coming and have time
to respond.
In that event, the United States should turn to regional forces as
the first line of defense, letting them uphold the balance of power in
their own neighborhood. Although Washington could provide assistance
to allies and pledge to support them if they were in danger of being
conquered, it should refrain from deploying large numbers of U.S.
forces abroad. It may occasionally make sense to keep certain assets
overseas, such as small military contingents, intelligence-gathering
facilities, or prepositioned equipment, but in general, Washington
July/August 2016
73
should pass the buck to regional powers, as they have a far greater
interest in preventing any state from dominating them.
If those powers cannot contain a potential hegemon on their own,
however, the United States must help get the job done, deploying
enough firepower to the region to shift the balance in its favor.
Sometimes, that may mean sending in forces before war breaks out.
During the Cold War, for example, the
United States kept large numbers of
By husbanding U.S.
ground and air forces in Europe out of
strength, an offshorethe belief that Western European
countries could not contain the Soviet
balancing strategy would
preserve U.S. primacy far Union on their own. At other times, the
United States might wait to intervene
into the future.
after a war starts, if one side seems
likely to emerge as a regional hegemon.
Such was the case during both world wars: the United States came in
only after Germany seemed likely to dominate Europe.
In essence, the aim is to remain offshore as long as possible, while
recognizing that it is sometimes necessary to come onshore. If that
happens, however, the United States should make its allies do as
much of the heavy lifting as possible and remove its own forces as
soon as it can.
Offshore balancing has many virtues. By limiting the areas the
U.S. military was committed to defending and forcing other states
to pull their own weight, it would reduce the resources Washington
must devote to defense, allow for greater investment and consumption at home, and put fewer American lives in harms way. Today,
allies routinely free-ride on American protection, a problem that
has only grown since the Cold War ended. Within NATO, for
example, the United States accounts for 46 percent of the alliances
aggregate GDP yet contributes about 75 percent of its military
spending. As the political scientist Barry Posen has quipped, This
is welfare for the rich.
Offshore balancing would also reduce the risk of terrorism. Liberal
hegemony commits the United States to spreading democracy in
unfamiliar places, which sometimes requires military occupation and
always involves interfering with local political arrangements. Such
efforts invariably foster nationalist resentment, and because the
opponents are too weak to confront the United States directly, they
74
sometimes turn to terrorism. (It is worth remembering that Osama

bin Laden was motivated in good part by the presence of U.S. troops
in his homeland of Saudi Arabia.) In addition to inspiring terrorists,
liberal hegemony facilitates their operations: using regime change to
spread American values undermines local institutions and creates
ungoverned spaces where violent extremists can flourish.
Offshore balancing would alleviate this problem by eschewing
social engineering and minimizing the United States military footprint. U.S. troops would be stationed on foreign soil only when a
country was in a vital region and threatened by a would-be hegemon.
In that case, the potential victim would view the United States as a
savior rather than an occupier. And once the threat had been dealt
with, U.S. military forces could go back over the horizon and not stay
behind to meddle in local politics. By respecting the sovereignty of
other states, offshore balancing would be less likely to foster antiAmerican terrorism.
A REASSURING HISTORY
Offshore balancing may seem like a radical strategy today, but it

provided the guiding logic of U.S. foreign policy for many decades
and served the country well. During the nineteenth century, the
United States was preoccupied with expanding across North America,
building a powerful state, and establishing hegemony in the Western
Hemisphere. After it completed these tasks at the end of the century,
it soon became interested in preserving the balance of power in
Europe and Northeast Asia. Nonetheless, it let the great powers in
those regions check one another, intervening militarily only when the
balance of power broke down, as during both world wars.
During the Cold War, the United States had no choice but to
go onshore in Europe and Northeast Asia, as its allies in those
regions could not contain the Soviet Union by themselves. So
Washington forged alliances and stationed military forces in both
regions, and it fought the Korean War to contain Soviet influence
in Northeast Asia.
In the Persian Gulf, however, the United States stayed offshore,
letting the United Kingdom take the lead in preventing any state from
dominating that oil-rich region. After the British announced their
withdrawal from the Gulf in 1968, the United States turned to the
shah of Iran and the Saudi monarchy to do the job. When the shah
July/August 2016
75
fell in 1979, the Carter administration began building the Rapid

Deployment Force, an offshore military capability designed to prevent
Iran or the Soviet Union from dominating the region. The Reagan
administration aided Iraq during that countrys 198088 war with
Iran for similar reasons. The U.S. military stayed offshore until 1990,
when Saddam Husseins seizure of Kuwait threatened to enhance
Iraqs power and place Saudi Arabia
and other Gulf oil producers at risk.
The aim is to remain
To restore the regional balance of
offshore as long as possible, power, the George H. W. Bush adminwhile recognizing that it is istration sent an expeditionary force to
liberate Kuwait and smash Saddams
sometimes necessary to
military machine.
come onshore.
For nearly a century, in short, offshore
balancing prevented the emergence of
dangerous regional hegemons and preserved a global balance of power
that enhanced American security. Tellingly, when U.S. policymakers
deviated from that strategyas they did in Vietnam, where the United
States had no vital intereststhe result was a costly failure.
Events since the end of the Cold War teach the same lesson. In
Europe, once the Soviet Union collapsed, the region no longer had a
dominant power. The United States should have steadily reduced its
military presence, cultivated amicable relations with Russia, and
turned European security over to the Europeans. Instead, it expanded
NATO and ignored Russian interests, helping spark the conflict over
Ukraine and driving Moscow closer to China.
In the Middle East, likewise, the United States should have moved
back offshore after the Gulf War and let Iran and Iraq balance each
other. Instead, the Clinton administration adopted the policy of dual
containment, which required keeping ground and air forces in Saudi
Arabia to check Iran and Iraq simultaneously. The George W. Bush
administration then adopted an even more ambitious strategy, dubbed
regional transformation, which produced costly failures in Afghanistan and Iraq. The Obama administration repeated the error when it
helped topple Muammar al-Qaddafi in Libya and when it exacerbated
the chaos in Syria by insisting that Bashar al-Assad must go and
backing some of his opponents. Abandoning offshore balancing after
the Cold War has been a recipe for failure.
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HEGEMONYS HOLLOW HOPES
Defenders of liberal hegemony marshal a number of unpersuasive

arguments to make their case. One familiar claim is that only vigorous
U.S. leadership can keep order around the globe. But global leadership is not an end in itself; it is desirable only insofar as it benefits the
United States directly.
One might further argue that U.S. leadership is necessary to overcome the collective-action problem of local actors failing to balance
against a potential hegemon. Offshore balancing recognizes this danger,
however, and calls for Washington to step in if needed. Nor does it
prohibit Washington from giving friendly states in the key regions
advice or material aid.
Other defenders of liberal hegemony argue that U.S. leadership is
necessary to deal with new, transnational threats that arise from failed
states, terrorism, criminal networks, refugee flows, and the like. Not
only do the Atlantic and Pacific Oceans offer inadequate protection
against these dangers, they claim, but modern military technology
also makes it easier for the United States to project power around the
world and address them. Todays global village, in short, is more dangerous yet easier to manage.
This view exaggerates these threats and overstates Washingtons
ability to eliminate them. Crime, terrorism, and similar problems can
be a nuisance, but they are hardly existential threats and rarely lend
themselves to military solutions. Indeed, constant interference in the
affairs of other statesand especially repeated military interventions
generates local resentment and fosters corruption, thereby making
these transnational dangers worse. The long-term solution to the
problems can only be competent local governance, not heavy-handed
U.S. efforts to police the world.
Nor is policing the world as cheap as defenders of liberal hegemony
contend, either in dollars spent or in lives lost. The wars in Afghanistan and Iraq cost between $4 trillion and $6 trillion and killed nearly
7,000 U.S. soldiers and wounded more than 50,000. Veterans of these
conflicts exhibit high rates of depression and suicide, yet the United
States has little to show for their sacrifices.
Defenders of the status quo also fear that offshore balancing would
allow other states to replace the United States at the pinnacle of global
power. On the contrary, the strategy would prolong the countrys dominance by refocusing its efforts on core goals. Unlike liberal hegemony,
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offshore balancing avoids squandering resources on costly and

counterproductive crusades, which would allow the government to
invest more in the long-term ingredients of power and prosperity:
education, infrastructure, and research and development. Remember,
the United States became a great power by staying out of foreign wars
and building a world-class economy, which is the same strategy China
has pursued over the past three decades. Meanwhile, the United States
has wasted trillions of dollars and put its long-term primacy at risk.
Another argument holds that the U.S. military must garrison the
world to keep the peace and preserve an open world economy.
Retrenchment, the logic goes, would renew great-power competition,
invite ruinous economic rivalries, and eventually spark a major war
from which the United States could not remain aloof. Better to keep
playing global policeman than risk a repeat of the 1930s.
Such fears are unconvincing. For starters, this argument assumes
that deeper U.S. engagement in Europe would have prevented World
War II, a claim hard to square with
Adolf Hitlers unshakable desire for
Offshore balancing may
war. Regional conflicts will sometimes
seem like a radical strategy occur no matter what Washington does,
today, but it provided the but it need not get involved unless vital
guiding logic of U.S. foreign U.S. interests are at stake. Indeed, the
United States has sometimes stayed
policy for many decades.
out of regional conflictssuch as the
Russo-Japanese War, the Iran-Iraq
War, and the current war in Ukrainebelying the claim that it
inevitably gets dragged in. And if the country is forced to fight another
great power, better to arrive late and let other countries bear the brunt
of the costs. As the last major power to enter both world wars, the
United States emerged stronger from each for having waited.
Furthermore, recent history casts doubt on the claim that U.S.
leadership preserves peace. Over the past 25 years, Washington has
caused or supported several wars in the Middle East and fueled minor
conflicts elsewhere. If liberal hegemony is supposed to enhance global
stability, it has done a poor job.
Nor has the strategy produced much in the way of economic
benefits. Given its protected position in the Western Hemisphere, the
United States is free to trade and invest wherever profitable opportunities exist. Because all countries have a shared interest in such activity,
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Washington does not need to play global policeman in order to remain

economically engaged with others. In fact, the U.S. economy would
be in better shape today if the government were not spending so much
money trying to run the world.
Proponents of liberal hegemony also claim that the United States
must remain committed all over the world to prevent nuclear proliferation. If it reduces its role in key regions or withdraws entirely, the
argument runs, countries accustomed to U.S. protection will have no
choice but to protect themselves by obtaining nuclear weapons.
No grand strategy is likely to prove wholly successful at preventing
proliferation, but offshore balancing would do a better job than liberal
hegemony. After all, that strategy failed to stop India and Pakistan
from ramping up their nuclear capabilities, North Korea from becoming the newest member of the nuclear club, and Iran from making
major progress with its nuclear program. Countries usually seek the
bomb because they fear being attacked, and U.S. efforts at regime
change only heighten such concerns. By eschewing regime change
and reducing the United States military footprint, offshore balancing
would give potential proliferators less reason to go nuclear.
Moreover, military action cannot prevent a determined country
from eventually obtaining nuclear weapons; it can only buy time.
The recent deal with Iran serves as a reminder that coordinated multilateral pressure and tough economic sanctions are a better way to
discourage proliferation than preventive war or regime change.
To be sure, if the United States did scale back its security guarantees,
a few vulnerable states might seek their own nuclear deterrents. That
outcome is not desirable, but all-out efforts to prevent it would almost
certainly be costly and probably be unsuccessful. Besides, the downsides may not be as grave as pessimists fear. Getting the bomb does
not transform weak countries into great powers or enable them to
blackmail rival states. Ten states have crossed the nuclear threshold
since 1945, and the world has not turned upside down. Nuclear proliferation will remain a concern no matter what the United States does,
but offshore balancing provides the best strategy for dealing with it.
THE DEMOCRACY DELUSION
Other critics reject offshore balancing because they believe the United
States has a moral and strategic imperative to promote freedom and
protect human rights. As they see it, spreading democracy will largely
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79
rid the world of war and atrocities, keeping the United States secure
and alleviating suffering.
No one knows if a world composed solely of liberal democracies
would in fact prove peaceful, but spreading democracy at the point of
a gun rarely works, and fledgling democracies are especially prone to
conflict. Instead of promoting peace, the United States just ends up
fighting endless wars. Even worse, force-feeding liberal values abroad
can compromise them at home. The global war on terrorism and the
related effort to implant democracy in Afghanistan and Iraq have led
to tortured prisoners, targeted killings, and vast electronic surveillance
of U.S. citizens.
Some defenders of liberal hegemony hold that a subtler version
of the strategy could avoid the sorts of disasters that occurred in
Afghanistan, Iraq, and Libya. They are deluding themselves. Democracy
promotion requires large-scale social engineering in foreign societies
that Americans understand poorly, which helps explain why Washingtons efforts usually fail. Dismantling and replacing existing political
institutions inevitably creates winners and losers, and the latter often
take up arms in opposition. When that happens, U.S. officials,
believing their countrys credibility is now at stake, are tempted to use
the United States awesome military might to fix the problem, thus
drawing the country into more conflicts.
If the American people want to encourage the spread of liberal
democracy, the best way to do so is to set a good example. Other
countries will more likely emulate the United States if they see it as a
just, prosperous, and open society. And that means doing more to
improve conditions at home and less to manipulate politics abroad.
THE PROBLEMATIC PACIFIER
Then there are those who believe that Washington should reject liberal
hegemony but keep sizable U.S. forces in Europe, Northeast Asia, and
the Persian Gulf solely to prevent trouble from breaking out. This
low-cost insurance policy, they argue, would save lives and money in
the long run, because the United States wouldnt have to ride to the
rescue after a conflict broke out. This approachsometimes called
selective engagementsounds appealing but would not work either.
For starters, it would likely revert back to liberal hegemony. Once
committed to preserving peace in key regions, U.S. leaders would be
sorely tempted to spread democracy, too, based on the widespread
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belief that democracies dont fight one another. This was the main
rationale for expanding NATO after the Cold War, with the stated goal
of a Europe whole and free. In the real world, the line separating
selective engagement from liberal hegemony is easily erased.
Advocates of selective engagement also assume that the mere
presence of U.S. forces in various regions will guarantee peace, and
so Americans need not worry about being dragged into distant conflicts.
In other words, extending security commitments far and wide poses
few risks, because they will never have to be honored.
But this assumption is overly optimistic: allies may act recklessly,
and the United States may provoke conflicts itself. Indeed, in Europe,
the American pacifier failed to prevent the Balkan wars of the 1990s,
the Russo-Georgian war in 2008, and the current conflict in Ukraine.
In the Middle East, Washington is largely responsible for several recent
wars. And in the South China Sea, conflict is now a real possibility
despite the U.S. Navys substantial regional role. Stationing U.S. forces
around the world does not automatically ensure peace.
Nor does selective engagement address the problem of buckpassing. Consider that the United Kingdom is now withdrawing its
army from continental Europe, at a time when NATO faces what it
considers a growing threat from Russia. Once again, Washington is
expected to deal with the problem, even though peace in Europe
should matter far more to the regions own powers.
THE STRATEGY IN ACTION
What would offshore balancing look like in todays world? The good
news is that it is hard to foresee a serious challenge to American
hegemony in the Western Hemisphere, and for now, no potential
hegemon lurks in Europe or the Persian Gulf. Now for the bad news:
if China continues its impressive rise, it is likely to seek hegemony in
Asia. The United States should undertake a major effort to prevent it
from succeeding.
Ideally, Washington would rely on local powers to contain China,
but that strategy might not work. Not only is China likely to be much
more powerful than its neighbors, but these states are also located far
from one another, making it harder to form an effective balancing
coalition. The United States will have to coordinate their efforts and
may have to throw its considerable weight behind them. In Asia, the
United States may indeed be the indispensable nation.
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In Europe, the United States should end its military presence and
turn NATO over to the Europeans. There is no good reason to keep
U.S. forces in Europe, as no country there has the capability to
dominate that region. The top conGermany and Russia, will both
There is no good reason to tenders,
lose relative power as their populations
keep U.S. forces in Europe, shrink in size, and no other potential
hegemon is in sight. Admittedly, leaving
as no country there has
the capability to dominate European security to the Europeans
could increase the potential for trouble
that region.
there. If a conflict did arise, however, it
would not threaten vital U.S. interests.
Thus, there is no reason for the United States to spend billions of
dollars each year (and pledge its own citizens lives) to prevent one.
In the Gulf, the United States should return to the offshorebalancing strategy that served it so well until the advent of dual containment. No local power is now in a position to dominate the region, so
the United States can move most of its forces back over the horizon.
With respect to ISIS, the United States should let the regional
powers deal with that group and limit its own efforts to providing
arms, intelligence, and military training. ISIS represents a serious
threat to them but a minor problem for the United States, and the
only long-term solution to it is better local institutions, something
Washington cannot provide.
In Syria, the United States should let Russia take the lead. A Syria
stabilized under Assads control, or divided into competing ministates,
would pose little danger to U.S. interests. Both Democratic and
Republican presidents have a rich history of working with the Assad
regime, and a divided and weak Syria would not threaten the regional
balance of power. If the civil war continues, it will be largely Moscows
problem, although Washington should be willing to help broker a
political settlement.
For now, the United States should pursue better relations with
Iran. It is not in Washingtons interest for Tehran to abandon the
nuclear agreement and race for the bomb, an outcome that would
become more likely if it feared a U.S. attackhence the rationale for
mending fences. Moreover, as its ambitions grow, China will want
allies in the Gulf, and Iran will likely top its list. (In a harbinger of
things to come, this past January, Chinese President Xi Jinping visited
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Tehran and signed 17 different agreements.) The United States has an

obvious interest in discouraging Chinese-Iranian security cooperation,
and that requires reaching out to Iran.
Iran has a significantly larger population and greater economic
potential than its Arab neighbors, and it may eventually be in a
position to dominate the Gulf. If it begins to move in this direction,
the United States should help the other Gulf states balance against
Tehran, calibrating its own efforts and regional military presence to
the magnitude of the danger.
THE BOTTOM LINE
Taken together, these steps would allow the United States to markedly
reduce its defense spending. Although U.S. forces would remain in
Asia, the withdrawals from Europe and the Persian Gulf would free
up billions of dollars, as would reductions in counterterrorism spending
and an end to the war in Afghanistan and other overseas interventions.
The United States would maintain substantial naval and air assets and
modest but capable ground forces, and it would stand ready to expand
its capabilities should circumstances require. But for the foreseeable
future, the U.S. government could spend more money on domestic
needs or leave it in taxpayers pockets.
Offshore balancing is a grand strategy born of confidence in the
United States core traditions and a recognition of its enduring advantages. It exploits the countrys providential geographic position and
recognizes the powerful incentives other states have to balance against
overly powerful or ambitious neighbors. It respects the power of
nationalism, does not try to impose American values on foreign
societies, and focuses on setting an example that others will want to
emulate. As in the past, offshore balancing is not only the strategy
that hews closest to U.S. interests; it is also the one that aligns best
with Americans preferences.
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83

What Critics Get Wrong About the
Global Economy
Douglas A. Irwin
ust because a U.S. presidential candidate bashes free trade on the

campaign trail does not mean that he or she cannot embrace it
once elected. After all, Barack Obama voted against the Central
American Free Trade Agreement as a U.S. senator and disparaged the
North American Free Trade Agreement (NAFTA) as a presidential
candidate. In office, however, he came to champion the Trans-Pacific
Partnership (TPP), a giant trade deal with 11 other Pacific Rim countries.
Yet in the current election cycle, the rhetorical attacks on U.S.
trade policy have grown so fiery that it is difficult to imagine similar
transformations. The Democratic candidate Bernie Sanders has railed
against disastrous trade agreements, which he claims have cost jobs
and hurt the middle class. The Republican Donald Trump complains
that China, Japan, and Mexico are killing the United States on trade
thanks to the bad deals struck by stupid negotiators. Even Hillary
Clinton, the expected Democratic nominee, who favored the TPP as
secretary of state, has been forced to join the chorus and now says she
opposes that agreement.
Blaming other countries for the United States economic woes is an
age-old tradition in American politics; if truth is the first casualty of
war, then support for free trade is often an early casualty of an election campaign. But the bipartisan bombardment has been so intense
this time, and has been so unopposed, that it raises real questions
about the future of U.S. global economic leadership.
The anti-trade rhetoric paints a grossly distorted picture of trades
role in the U.S. economy. Trade still benefits the United States
DOUGLAS A. IRWIN is John Sloan Dickey Third Century Professor in the Social Sciences
in the Department of Economics at Dartmouth College and the author of Free Trade Under
Fire. Follow him on Twitter @D_A_Irwin.
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enormously, and striking back at other countries by imposing new

barriers or ripping up existing agreements would be self-destructive.
The badmouthing of trade agreements has even jeopardized the
ratification of the TPP in Congress. Backing out of that deal would
signal a major U.S. retreat from Asia and mark a historic error.
Still, it would be a mistake to dismiss all of the anti-trade talk as illinformed bombast. Todays electorate harbors legitimate, deep-seated
frustrations about the state of the U.S. economy and labor markets in
particular, and addressing these complaints will require changing
government policies. The solution, however, lies not in turning away
from trade promotion but in strengthening worker protections.
By and large, the United States has no major difficulties with
respect to trade, nor does it suffer from problems that could be solved
by trade barriers. What it does face, however, is a much larger problem, one that lies at the root of anxieties over trade: the economic
ladder that allowed previous generations of lower-skilled Americans
to reach the middle class is broken.
SCAPEGOATING TRADE
Campaign attacks on trade leave an unfortunate impression on the

American public and the world at large. In saying that some countries
win and other countries lose as a result of trade, for example,
Trump portrays it as a zero-sum game. Thats an understandable perspective for a casino owner and businessman: gambling is the quintessential zero-sum game, and competition is a win-lose proposition
for firms (if not for their customers). But it is dead wrong as a way to
think about the role of trade in an economy. Trade is actually a twoway streetthe exchange of exports for importsthat makes efficient
use of a countrys resources to increase its material welfare. The
United States sells to other countries the goods and services that it
produces relatively efficiently (from aircraft to soybeans to legal
advice) and buys those goods and services that other countries produce
relatively efficiently (from T-shirts to bananas to electronics assembly).
In the aggregate, both sides benefit.
To make their case that trade isnt working for the United States,
critics invoke long-discredited indicators, such as the countrys negative balance of trade. Our trade deficit with China is like having a
business that continues to lose money every single year, Trump once
said. Who would do business like that? In fact, a nations trade
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Douglas A. Irwin
balance is nothing like a firms bottom line. Whereas a company cannot

lose money indefinitely, a countryparticularly one, such as the
United States, with a reserve currencycan run a trade deficit
indefinitely without compromising its well-being. Australia has run
current account deficits even longer than the United States has, and
its economy is flourishing.
One way to define a countrys trade balance is the difference between its domestic savings and its domestic investment. The United
States has run a deficit in its current accountthe broadest measure
of trade in goods and servicesevery year except one since 1981.
Why? Because as a low-saving, high-consuming country, the United
States has long been the recipient of capital inflows from abroad.
Reducing the current account deficit would require foreigners to purchase fewer U.S assets. That, in turn, would require increasing domestic savings or, to put it in less popular terms, reducing consumption.
One way to accomplish that would be to change the tax systemfor
example, by instituting a consumption tax. But discouraging spending
and rewarding savings is not easy, and critics of the trade deficit do
not fully appreciate the difficulty involved in reversing it. (And if a
current account surplus were to appear, critics would no doubt complain, as they did in the 1960s, that the United States was investing
too much abroad and not enough at home.)
Critics also point to the trade deficit to suggest that the United
States is losing more jobs as a result of imports than it gains due to
exports. In fact, the trade deficit usually increases when the economy
is growing and creating jobs and decreases when it is contracting and
losing jobs. The U.S. current account deficit shrank from 5.8 percent
of GDP in 2006 to 2.7 percent in 2009, but that didnt stop the economy
from hemorrhaging jobs. And if there is any doubt that a current
account surplus is no economic panacea, one need only look at Japan,
which has endured three decades of economic stagnation despite
running consistent current account surpluses.
And yet these basic fallaciesmany of which Adam Smith
debunked more than two centuries agohave found a new life in
contemporary American politics. In some ways, it is odd that antitrade sentiment has blossomed in 2016, of all years. For one thing,
although the post-recession recovery has been disappointing, it has
hardly been awful: the U.S. economy has experienced seven years of
slow but steady growth, and the unemployment rate has fallen to just
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Nice work if you can get it: at a Ford plant in Michigan, November 2012
R E B E C CA C O O K / R E U T E R S
five percent. For another thing, imports have not swamped the country
and caused problems for domestic producers and their workers; over
the past seven years, the current account deficit has remained roughly
unchanged at about two to three percent of GDP, much lower than its
level from 2000 to 2007. The pace of globalization, meanwhile, has
slowed in recent years. The World Trade Organization (WTO)
forecasts that the volume of world trade will grow by just 2.8 percent
in 2016, the fifth consecutive year that it has grown by less than three
percent, down significantly from previous decades.
Whats more, despite what one might infer from the crowds at
campaign rallies, Americans actually support foreign trade in general
and even trade agreements such as the TPP in particular. After a
decade of viewing trade with skepticism, since 2013, Americans have
seen it positively. A February 2016 Gallup poll found that 58 percent
of Americans consider foreign trade an opportunity for economic
growth, and only 34 percent viewed it as a threat.
THE VIEW FROM THE BOTTOM
So why has trade come under such strident attack now? The most
important reason is that workers are still suffering from the aftermath
of the Great Recession, which left many unemployed and indebted.
Between 2007 and 2009, the United States lost nearly nine million
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Douglas A. Irwin
jobs, pushing the unemployment rate up to ten percent. Seven years

later, the economy is still recovering from this devastating blow.
Many workers have left the labor force, reducing the employment-topopulation ratio sharply. Real wages have remained flat. For many
Americans, the recession isnt over.
Thus, even as trade commands broad public support, a significant
minority of the electorateabout a third, according to various polls
decidedly opposes it. These critics come from both sides of the political divide, but they tend to be lower-income, blue-collar workers, who
are the most vulnerable to economic
change. They believe that economic
Trade still benefits the
elites and the political establishment
United States enormously. have looked out only for themselves
over the past few decades. As they see
it, the government bailed out banks during the financial crisis, but
no one came to their aid.
For these workers, neither political party has taken their concerns
seriously, and both parties have struck trade deals that the workers
think have cost jobs. Labor unions that support the Democrats still
feel betrayed by President Bill Clinton, who, over their strong objections, secured congressional passage of NAFTA in 1993 and normalized trade relations with China in 2000. Blue-collar Republican
voters, for their part, supported the anti-NAFTA presidential campaigns of Pat Buchanan and Ross Perot in 1992. They felt betrayed
by President George W. Bush, who pushed Congress to pass many
bilateral trade agreements. Today, they back Trump.
Among this demographic, a narrative has taken hold that trade has
cost Americans their jobs, squeezed the middle class, and kept wages low.
The truth is more complicated. Although imports have put some people
out of work, trade is far from the most important factor behind the loss
of manufacturing jobs. The main culprit is technology. Automation and
other technologies have enabled vast productivity and efficiency
improvements, but they have also made many blue-collar jobs obsolete.
One representative study, by the Center for Business and Economic
Research at Ball State University, found that productivity growth
accounted for more than 85 percent of the job loss in manufacturing
between 2000 and 2010, a period when employment in that sector fell by
5.6 million. Just 13 percent of the overall job loss resulted from trade,
although in two sectors, apparel and furniture, it accounted for 40 percent.
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This finding is consistent with research by the economists David

Autor, David Dorn, and Gordon Hanson, who have estimated that
imports from China displaced as many as 982,000 workers in manufacturing from 2000 to 2007. These layoffs also depressed local labor
markets in communities that produced goods facing Chinese competition, such as textiles, apparel, and furniture. The number of jobs lost
is large, but it should be put in perspective: while Chinese imports
may have cost nearly one million manufacturing jobs over almost a
decade, the normal churn of U.S. labor markets results in roughly
1.7 million layoffs every month.
Research into the effect of Chinese imports on U.S. employment
has been widely misinterpreted to imply that the United States has
gotten a raw deal from trade with China. In fact, such studies do not
evaluate the gains from trade, since they make no attempt to quantify
the benefits to consumers from lower-priced goods. Rather, they serve
as a reminder that a rapid increase in imports can harm communities
that produce substitute goodsas happened in the U.S. automotive
and steel sectors in the 1980s.
Furthermore, the shock of Chinese goods was a one-time event that
occurred under special circumstances. Imports from China increased
from 1.0 percent of U.S. GDP in 2000 to 2.6 percent in 2011, but for
the past five years, the share has stayed roughly constant. There is no
reason to believe it will rise further. Chinas once-rapid economic
growth has slowed. Its working-age population has begun to shrink,
and the migration of its rural workers to coastal urban manufacturing
areas has largely run its course.
The influx of Chinese imports was also unusual in that much of it
occurred from 2001 to 2007, when Chinas current account surplus
soared, reaching ten percent of GDP in 2007. The countrys export
boom was partly facilitated by Chinas policy of preventing the
appreciation of the yuan, which lowered the price of Chinese goods.
Beginning around 2000, the Chinese central bank engaged in a largescale, persistent, and one-way intervention in the foreign exchange
marketbuying dollars and selling yuan. As a result, its foreign
exchange reserves rose from less than $300 million in 2000 to $3.25 trillion in 2011. Critics rightly groused that this effort constituted
currency manipulation and violated International Monetary Fund
rules. Yet such complaints are now moot: over the past year, Chinas
foreign exchange reserves have fallen rapidly as its central bank has
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Douglas A. Irwin
sought to prop up the value of the yuan. Punishing China for past
bad behavior would accomplish nothing.
THE RIGHTAND WRONGSOLUTIONS
The real problem is not trade but diminished domestic opportunity

and social mobility. Although the United States boasts a highly
skilled work force and a solid technological base, it is still the case
that only one in three American adults has a college education. In
past decades, the two-thirds of Americans with no postsecondary
degree often found work in manufacturing, construction, or the
armed forces. These parts of the economy stood ready to absorb
large numbers of people with limited education, give them
productive work, and help them build skills. Over time, however,
these opportunities have disappeared. Technology has shrunk
manufacturing as a source of large-scale employment: even though
U.S. manufacturing output continues to grow, it does so with
many fewer workers than in the past. Construction work has not
recovered from the bursting of the housing bubble. And the
military turns away 80 percent of applicants due to stringent fitness
and intelligence requirements. There are no comparable sectors of
the economy that can employ large numbers of high-schooleducated workers.
This is a deep problem for American society. The unemployment
rate for college-educated workers is 2.4 percent, but it is more than
7.4 percent for those without a high school diplomaand even higher
when counting discouraged workers who have left the labor force but
wish to work. These are the people who have been left behind in the
twenty-first-century economyagain, not primarily because of trade
but because of structural changes in the economy. Helping these
workers and ensuring that the economy delivers benefits to everyone
should rank as urgent priorities.
But here is where the focus on trade is a diversion. Since trade is
not the underlying problem in terms of job loss, neither is protectionism
a solution. While the gains from trade can seem abstract, the costs of
trade restrictions are concrete. For example, the United States has
some 135,000 workers employed in the apparel industry, but there are
more than 45 million Americans who live below the poverty line,
stretching every dollar they have. Can one really justify increasing the
price of clothing for 45 million low-income Americans (and everyone
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else as well) in an effort to save the jobs of just some of the 135,000
low-wage workers in the apparel industry?
Like undoing trade agreements, imposing selective import duties
to punish specific countries would also fail. If the United States were
to slap 45 percent tariffs on imports from China, as Trump has proposed, U.S. companies would not start
producing more apparel and footwear
For many Americans, the
in the United States, nor would they
start assembling consumer electronics recession isnt over.
domestically. Instead, production would
shift from China to other low-wage developing countries in Asia, such
as Vietnam. Thats the lesson of past trade sanctions directed against
China alone: in 2009, when the Obama administration imposed duties
on automobile tires from China in an effort to save American jobs,
other suppliers, principally Indonesia and Thailand, filled the void,
resulting in little impact on U.S. production or jobs.
And if restrictions were levied against all foreign imports to prevent
such trade diversion, those barriers would hit innocent bystanders:
Canada, Japan, Mexico, the EU, and many others. Any number of
these would use WTO procedures to retaliate against the United States,
threatening the livelihoods of the millions of Americans with jobs that
depend on exports of manufactured goods. Trade wars produce no winners. There are good reasons why the very mention of the 1930 SmootHawley Tariff Act still conjures up memories of the Great Depression.
If protectionism is an ineffectual and counterproductive response
to the economic problems of much of the work force, so, too, are
existing programs designed to help workers displaced by trade.
The standard package of Trade Adjustment Assistance, a federal
program begun in the 1960s, consists of extended unemployment
compensation and retraining programs. But because these benefits
are limited to workers who lost their jobs due to trade, they miss
the millions more who are unemployed on account of technological
change. Furthermore, the program is fraught with bad incentives.
Extended unemployment compensation pays workers for prolonged
periods of joblessness, but their job prospects usually deteriorate
the longer they stay out of the labor force, since they have lost
experience in the interim.
And although the idea behind retraining is a good onehelping
laid-off textile or steel workers become nurses or techniciansthe
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Douglas A. Irwin
actual program is a failure. A 2012 external review commissioned

by the Department of Labor found that the government retraining
programs were a net loss for society, to the tune of about $54,000
per participant. Half of that fell on the participants themselves,
who, on average, earned $27,000 less over the four years of the
study than similar workers who did not find jobs through the
program, and half fell on the government, which footed the bill
for the program. Sadly, these programs appear to do more harm
than good.
A better way to help all low-income workers would be to expand
the Earned Income Tax Credit. The EITC supplements the incomes
of workers in all low-income households, not just those the Department of Labor designates as having been adversely affected by trade.
Whats more, the EITC is tied to employment, thereby rewarding
work and keeping people in the labor market, where they can gain
experience and build skills. A large enough EITC could ensure that
every American was able to earn the equivalent of $15 or more per
hour. And it could do so without any of the job loss that a minimumwage hike can cause. Of all the potential assistance programs, the
EITC also enjoys the most bipartisan support, having been endorsed
by both the Obama administration and Paul Ryan, the Republican
Speaker of the House. A higher EITC would not be a cure-all, but it
would provide income security for those seeking to climb the ladder
to the middle class.
The main complaint about expanding the EITC concerns the cost.
Yet taxpayers are already bearing the burden of supporting workers
who leave the labor force, many of whom start receiving disability
payments. On disability, people are paidpermanentlyto drop out
of the labor force and not work. In lieu of this federal program, the
cost of which has surged in recent years, it would be better to help
people remain in the work force through the EITC, in the hope that
they can eventually become taxpayers themselves.
THE FUTURE OF FREE TRADE
Despite all the evidence of the benefits of trade, many of this years
crop of presidential candidates have still invoked it as a bogeyman.
Sanders deplores past agreements but has yet to clarify whether he
believes that better ones could have been negotiated or no such agreements should be reached at all. His vote against the U.S.-Australian
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free-trade agreement in 2004 suggests that he opposes all trade deals,

even one with a country that has high labor standards and with which
the United States runs a sizable balance of trade surplus. Trump
professes to believe in free trade, but he insists that the United States
has been outnegotiated by its trade partners, hence his threat to
impose 45 percent tariffs on imports from China to get a better
dealwhatever that means. He has attacked Japans barriers against
imports of U.S. agricultural goods, even
though that is exactly the type of proThe anti-trade rhetoric of
tectionism the TPP has tried to undo.
Meanwhile, Clintons position against the campaign has made it
the TPP has hardened as the campaign difficult for even pro-trade
has gone on.
members of Congress to
The response from economists has
tended to be either meek defenses of support new agreements.
trade or outright silence, with some
even criticizing parts of the TPP. Its time for supporters of free trade
to engage in a full-throated championing of the many achievements
of U.S. trade agreements. Indeed, because other countries trade barriers tend to be higher than those of the United States, trade agreements open foreign markets to U.S. exports more than they open the
U.S. market to foreign imports.
That was true of NAFTA, which remains a favored punching bag on
the campaign trail. In fact, NAFTA has been a big economic and foreign
policy success. Since the agreement entered into force in 1994, bilateral
trade between the United States and Mexico has boomed. For all the
fear about Mexican imports flooding the U.S. market, it is worth
noting that about 40 percent of the value of imports from Mexico
consists of content originally made in the United Statesfor example,
auto parts produced in the United States but assembled in Mexico. It
is precisely such trade in component parts that makes standard
measures of bilateral trade balances so misleading.
NAFTA has also furthered the United States long-term political,
diplomatic, and economic interest in a flourishing, democratic Mexico,
which not only reduces immigration pressures on border states but
also increases Mexican demand for U.S. goods and services. Far from
exploiting Third World labor, as critics have charged, NAFTA has
promoted the growth of a middle class in Mexico that now includes
nearly half of all households. And since 2009, more Mexicans have
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Douglas A. Irwin
left the United States than have come in. In the two decades since
NAFTA went into effect, Mexico has been transformed from a clientelistic one-party state with widespread anti-American sentiment into
a functional multiparty democracy with a generally pro-American
public. Although it has suffered from drug wars in recent years (a
spillover effect from problems that are largely made in America), the
overall story is one of rising prosperity thanks in part to NAFTA.
Ripping up NAFTA would do immense damage. In its foreign
relations, the United States would prove itself to be an unreliable
partner. And economically, getting rid of the agreement would
disrupt production chains across North America, harming both
Mexico and the United States. It would add to border tensions while
shifting trade to Asia without bringing back any U.S. manufacturing
jobs. The American public seems to understand this: in an October
2015 Gallup poll, only 18 percent of respondents agreed that leaving
NAFTA or the Central American Free Trade Agreement would be very
effective in helping the economy.
A more moderate option would be for the United States to take a
pause and simply stop negotiating any more trade agreements, as
Obama did during his first term. The problem with this approach,
however, is that the rest of the world would continue to reach trade
agreements without the United States, and so U.S. exporters would
find themselves at a disadvantage compared with their foreign
competitors. Glimpses of that future can already be seen. In 2012, the
car manufacturer Audi chose southeastern Mexico over Tennessee for
the site of a new plant because it could save thousands of dollars per
car exported thanks to Mexicos many more free-trade agreements,
including one with the EU. Australia has reached trade deals with
China and Japan that give Australian farmers preferential access in
those markets, cutting into U.S. beef exports.
If Washington opted out of the TPP, it would forgo an opportunity
to shape the rules of international trade in the twenty-first century.
The Uruguay Round, the last round of international trade negotiations completed by the General Agreement on Tariffs and Trade,
ended in 1994, before the Internet had fully emerged. Now, the United
States high-tech firms and other exporters face foreign regulations
that are not transparent and impede market access. Meanwhile, other
countries are already moving ahead with their own trade agreements,
increasingly taking market share from U.S. exporters in the dynamic
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Asia-Pacific region. Staying out of the TPP would not lead to the
creation of good jobs in the United States. And despite populist claims
to the contrary, the TPPs provisions for settling disputes between investors and governments and dealing with intellectual property rights
are reasonable. (In the early 1990s, similar fears about such provisions
in the WTO were just as exaggerated and ultimately proved baseless.)
The United States should proceed with passage of the TPP and
continue to negotiate other deals with its trading partners. So-called
plurilateral trade agreements, that is, deals among relatively small
numbers of like-minded countries, offer the only viable way to pick
up more gains from reducing trade barriers. The current climate on
Capitol Hill means that the era of small bilateral agreements, such as
those pursued during the George W. Bush administration, has ended.
And the collapse of the Doha Round at the WTO likely marks the end
of giant multilateral trade negotiations.
Free trade has always been a hard sell. But the anti-trade rhetoric
of the 2016 campaign has made it difficult for even pro-trade members
of Congress to support new agreements. Past experience suggests that
Washington will lead the charge for reducing trade barriers only when
there is a major trade problem to be solvednamely, when U.S.
exporters face severe discrimination in foreign markets. Such was
the case when the United States helped form the General Agreement
on Tariffs and Trade in 1947, when it started the Kennedy Round
of trade negotiations in the 1960s, and when it initiated the Uruguay
Round in the 1980s. Until the United States feels the pain of getting cut
out of major foreign markets, its leadership on global trade may wane.
That would represent just one casualty of the current campaign.
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NATOs Next Act

How to Handle Russia and Other Threats
Philip M. Breedlove
n May 2013, when I became commander of U.S. European Command and NATOs supreme allied commander for Europe, I found
U.S. and NATO forces well suited for their requirements at the
time but ill prepared for the challenges that lay ahead. The United
States military presence in Europe, which had shrunk significantly
since the 1990s, was not oriented toward a specific threat. NATO, for
its part, was mostly involved in operations outside the continent,
primarily in Afghanistan.
Now that I have completed my tenure, I have the chance to
reflect on how U.S. European Command and NATO have evolved
since I took up my positions. Over the past three years, the United
States and the alliance have shifted their focus to threats closer to
the heart of Europenamely, Russian aggression and the vexing
challenges associated with the ongoing instability in the Middle
East and North Africa. These threats are of a breadth and complexity
that the continent has not seen since the end of World War II.
Although the United States and NATO are better prepared to
confront them today than they were in early 2014, when Russia
illegally annexed Crimea and conducted a de facto invasion of
eastern Ukraine, there is much more that the United States and its
allies must doabove all, improve their abilities to deter the Russian
threat and to deal with the problems associated with regional
instability on Europes borders, namely, international displacement
and transnational terrorism. To better prepare for these challenges,
the United States should increase the resources available to its
forces in Europe and recognize Russia as the enduring, global threat
it really represents.
PHILIP M. BREEDLOVE was Commander of U.S. European Command and NATOs

Supreme Allied Commander, Europe, from 2013 to 2016. Follow him on Twitter @PMBreedlove.
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THE ROAD TO THE PRESENT
To appreciate the position the United States and its allies found
themselves in when Russia began its intervention in Ukraine, it is
helpful to look back to the Cold War. In the final years of that conflict,
NATOs forces and those of the Warsaw Pact enjoyed relative parity.
NATO had approximately 2.3 million men under arms in Europe; the
nations of the Warsaw Pact had about 2.1 million. Although the
Warsaw Pact countries had more tanks, artillery pieces, and fighter
jets than NATO, the alliance managed to counter this numerical
advantage through its advanced military equipment. NATOs mission
at the time was hardly easy, but it was relatively clear-cut. The West
knew how to deal with a potential invasion launched by the Warsaw
Pact, and the relative parity between NATO and the communist bloc,
along with the doctrine of mutual assured destruction, ensured that
such an invasion was unlikely.
When the Warsaw Pact and the Soviet Union dissolved in 1991,
NATO was already developing a strategic vision for Europes new security environment that placed less emphasis on nuclear deterrence and
the forward deployment of allied forces. The United States and most
of its NATO allies dramatically decreased the size of their forces in
Europe. Meanwhile, the sudden collapse of Soviet power, which in
eastern Europe had held nationalism and instability in check for
decades, allowed democratization to begin in newly independent
states, but it also led to civil strife, most notably in the Balkans. NATO,
then the worlds only capable multinational force, sent peacekeepers
there, tipping the balance toward a political resolution of the conflict.
Then, in the years after 9/11, the alliance intervened in Afghanistan,
and subsequently in Libya, where it also faced challengers without the
advanced military capabilities of a near-peer competitor. In other words,
in the decades after the Cold War, NATO found a new raison dtre in
stability operations and confronting low-end threats. It adjusted its
force structure accordingly.
All the while, neither the United States nor NATO was paying
enough attention to its old nemesis to the east: Russia, which was
working to reassert its influence in many of the areas the Soviet Union
had once dominated. In every year after 1998, Russia increased its
military spending; at the same time, it was increasingly meddling in
the affairs of its neighbors, for example, by suspending gas supplies to
Ukraine several times in the years after the Orange Revolution of
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Philip M. Breedlove
20045. It was Russias invasion of Georgia in 2008, however, that

showed just how far Moscow was willing to go to punish states on its
periphery for moving closer to the West. The speed with which the
invading Russian forces moved into Georgia left no doubt that the
operation had been planned far in advance. The United States was
focused on the wars in Afghanistan and Iraq and on fighting global
terrorism, and Russia saw an opportunity.
Russias operation in Georgia formed part of the blueprint for its
actions in Ukraine. By seizing Crimea, backing separatist rebels in the
Donbas, and sponsoring protests against the pro-Western government
in Kiev, Russia showed once again that it was willing to undermine
established norms of international behavior to achieve its goals.
When the West responded by levying sanctions against Russia that,
compounded by low oil prices, resulted in a rapid economic decline,
Moscow doubled down, increasing its provocations against NATO ships
and planes operating in international territory, intervening in Syria
in support of President Bashar al-Assad, and further militarizing
the Arctic.
Moscow is determined to reestablish what it considers its rightful
sphere of influence, undermine NATO, and reclaim its great-power
status. That desire has been evident since 2005, when Russian
President Vladimir Putin called the collapse of the Soviet Union the
greatest geopolitical catastrophe of the [twentieth] centurya preposterous claim in light of that centurys two world wars. It is through
this prism that the West must view Russian aggression.
COMPOUNDING PROBLEMS
Despite Russias growing belligerence, neither the United States

military nor those of its allies are adequately prepared to rapidly
respond to overt military aggression. Nor are they sufficiently ready to
counter the kind of hybrid warfare that Moscow has waged in eastern
Ukraine. At the height of the Cold War, the United States had more
than 400,000 soldiers assigned to Europe; today, there are fewer than
100,000 soldiers assigned to the continent, and 35,000 of them are on
rotational deployments. Indeed, even when combined with the forces
of NATO, the United States military presence on the continent would
be hard-pressed to deter a determined Russia. By rapidly invading a
NATO ally, Russia could present a fait accompli that would be brutally
expensive and difficult for the United States and its allies to reverse.
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Under our wing: a NATO air-policing mission over Lithuania, May 2015
INTS KALNINS / REUTERS
The imposition of compulsory budget cuts in the United States has

compounded these challenges by limiting the Department of Defenses
ability to plan for the future and by mandating risky drawdowns in
both the capacity and the capabilities of the U.S. military. Adding to
the challenge, the U.S. defense budget has declined in real terms since
2010, even as the countrys international requirements have increased.
The United States operations in Africa and the Middle East, meanwhile, have increased the burden on the countrys assets in Europe,
which are frequently used to support U.S. missions in those regions. And
an increased focus on the Asia-Pacific as a result of the rebalance means
that there are fewer resources available for U.S. operations elsewhere.
Other NATO members face similar problems. Only a handful of NATO
nations are capable of conducting full-spectrum combat operations,
and none can do so for a prolonged period. Although a number of
NATO members have halted their slide in defense spending, most are
still failing to achieve the alliance-wide target for defense expenditures
of two percent of GDP. What is more, although NATO has gained
12 new members since 1990, its total military spending, excluding that
of the United States, has decreased: from some $332 billion in 1990 to
$303 billion in 2014 in constant 2011 dollars, according to the Stockholm
International Peace Research Institute. And the alliance remains
responsible for some of the missions it took on after the end of the
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Cold War: in Kosovo, where it has stationed some 4,800 soldiers, and
in Afghanistan, where NATO will likely remain engaged in some form
until 2020.
The Syrian civil war and persistent instability throughout the Middle
East and in North Africa have further complicated matters by encouraging the largest refugee crisis in Europe since World War II. The
resources that NATO members array against these challenges and
against the threat of domestic terrorism are simply not available for
the alliances use elsewhere.
Indeed, as members attempt to cut back on their military spending
amid slow economic growth, they must pick and choose where to concentrate their efforts. Countries on the eastern and northern flanks of
NATO, such as Poland and the Baltic states, tend to see Russia as the
most immediate threat to their security, whereas states closer to the
turmoil in the Middle East and North Africa, such as France, Greece,
Italy, and Turkey, tend to view the migrant crisis as a more pressing
challenge. Facing such challenges, along with the high costs of
developing and acquiring the advanced weapons systems that might
deter Russia, many NATO countries are instead investing in forces
designed for limited territorial defense and internal security. And
because adjusting NATOs broader military posture requires the
unanimous agreement of all 28 member states, reforming the force
is a slow process.
EARLY STEPS
The good news is that the United States and NATO recognize that the
European neighborhood has changed and have begun to act. In June
2014, U.S. President Barack Obama announced the European
Reassurance Initiative, an effort to demonstrate the United States
commitment to the security and territorial integrity of its European
allies in the wake of Russias intervention in Ukraine. With a budget
of $985 million in fiscal year 2015 and an additional $789 million in
fiscal year 2016, the initiative has funded new bilateral and multilateral military exercises and greater deployments of U.S. forces to
the continent, supported by the placement of more U.S. military
equipment, including artillery, tanks, and other armored fighting
vehicles, in central and eastern Europe. These moves not only are
increasing the United States combat readiness but also will save the
country millions of dollars relative to what it would have cost to
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repeatedly send similar assets to Europe. The increased funding that

Obama has requested for the initiative in fiscal year 2017, of some
$3.4 billion, will do even more to improve the United States and
NATOs ability to deter Russia, in part
by allowing the United States to Despite Russias growing
ramp up training programs with its
allies, preposition even more military belligerence, the United
equipment in Europe, build up the States military is not
military capacities of U.S. partners, and adequately prepared to
invest in the infrastructure needed to
support all these measures. It will also respond.
support the development of Army
Prepositioned Stocks, which are complete prepositioned sets of
supplies and equipment for armored and mechanized brigades;
these will allow the United States and its allies to rapidly deploy
reinforcements in the event of a crisis.
Meanwhile, in the summer of 2014, U.S. European Command
began Operation Atlantic Resolve, a broad program of action in
support of the European Reassurance Initiative. U.S. forces have
maintained successive rotational deployments in Poland and the
Baltic states for almost two years. In the Mediterranean and the
Black Sea region, the U.S. Marine Corps has kept up the nearly
continuous rotational presence that it began in 2010, and the U.S.
Navy has increased its presence in the Bosporus. The U.S. Air
Force, for its part, has significantly ramped up so-called microdeployments of small teams of fighter and attack aircraft to other
NATO countries, where they work with their hosts to exchange
tactics and improve interoperability.
NATO, too, is changing. In 2014, the alliance agreed to the Readiness
Action Plan to ensure that it can react swiftly to security challenges
on its eastern and southern frontiers. The plan includes a number of
immediate measures, such as ramped-up military exercises and aerial
patrols over the Baltic states, which are aimed at reassuring the populations of NATO countries, deterring Russian aggression, and improving
interoperability among national forces. More significant are the longterm reforms that aim to improve the readiness and responsiveness
of the alliances forces. To begin with, NATO created the Very High
Readiness Joint Task Force, a brigade that can respond to crises on
extremely short notice. Then, last summer, NATO announced that
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it would triple the size of that contingents parent force, a land,

sea, and air group known as the NATO Response Force, to around
40,000 soldiers.
The alliance has also improved its command-and-control structures.
In six vulnerable central and eastern European member states, NATO
has established small headquarters, known as Force Integration Units,
which will help incorporate allied forces into the defense structures of
the host countries, ensuring that when NATO troops are deployed to a
conflict involving one of its members, they will be able to work
seamlessly with forces already in the fight. And in 2015, NATO established
two new tactical headquarters in Poland and Romania. Improvements
such as these will upgrade the readiness of NATOs forces, serve as an
effective deterrent against would-be foes, and help the alliance better
monitor the ongoing instability in the Middle East and North Africa.
Taken together, the measures pursued under NATOs Readiness Action
Plan represent the most significant reinforcement of the alliances
capacity for collective defense since the end of the Cold War.
WHAT THE FUTURE HOLDS
These actions are a strong start, but they are not enough. The foundation
of any strategy in Europe must be the recognition that Russia poses
an enduring existential threat to the United States, its allies, and the
international order. Russia is determined to once again become a global
poweran ambition it has demonstrated by, for example, conducting
confrontational mock attacks on U.S. forces, as Russian warplanes
did to the USS Donald Cook in the Baltic Sea in April, and resuming
Cold Warera strategic bomber flights along the U.S. coastline. What
is more, as Russias intervention in Syria has demonstrated, Moscow
will seek out all opportunities to expand its influence abroad. Because
the Kremlin views the United States and other NATO members as its
primary adversaries, it considers its relationship with the West a zerosum game. It will continue to do so for the foreseeable future.
The Putin government will not allow any nation over which it has
sufficient leverage to develop closer ties with the Westnamely, by
moving toward membership in the EU or NATOand it will do everything in its power to sow instability in countries such as Georgia,
Moldova, and Ukraine. Putin no doubt knows that the EU and NATO
will be reluctant to accept a nation as a member if it is caught up in a
so-called frozen conflict.
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At the same time, Russia will continue to improve its militarys ability
to offset the technological advantages currently enjoyed by NATO.
Although Russias fighter aircraft do not currently match the Wests, the
countrys advanced air defenses, coastal
cruise missiles, antiship capabilities, and
The United States
air-launched cruise missiles are increasingly capable. If Moscow managed to should seek to change
keep U.S. reinforcements out of a Russias calculus before
potential conflict between Russia and Moscow acts aggressively.
NATO while preventing Western warplanes from hitting their targets, it would
seriously degrade the advantages of the United States and its allies. To
this end, Russia is establishing anti-access/area-denial zones across its
periphery, including in the Baltic and Black Seas, the Arctic, and the
Russian Far East. What is more, Russias growing footprint in Syria
offers Moscow the capability, if it chooses, to threaten U.S. and allied
forces operating in the eastern Mediterranean and in the skies over Syria.
Russia has shown that it can cause Washington and its allies significant
political and military angst with minimal effort and at relatively little
cost. So far, the United States and NATO have consistently reacted to
Russias provocations rather than preempting them. Instead, the United
States and its allies should take a proactive stance that seeks to change
Russias calculus before Moscow acts aggressively. Under such a strategy, the United States and its allies would determine in advance and
then clearly articulate when they will counter Russias moves, when they
will ignore them, and when they will seek cooperation.
There are certainly opportunities to work with Russia, as Washington
and Moscows mutual effort to bring Iran to the negotiating table
through economic sanctions has shown. In dealing with North Korea,
managing drug trafficking in Central Asia, policing the fisheries in
the North Pacific, and undertaking search-and-rescue operations in
the Arctic, to name only a few, there are further potential opportunities
for the two countries to work together on shared interests.
Even as the United States works with Russia on issues such as these,
however, it must not allow its stance against Moscows transgressions
to soften. The Kremlin respects only strength and sees opportunity in
the weakness and inattention of others, so the United States and NATO
must stand firm, especially with respect to Russias nefarious and
coercive attempts to prevent countries on its periphery from choosing
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Philip M. Breedlove
to align with the EU and NATO. Washingtons strategy should reassure

U.S. allies and ensure that the Kremlin understands the specific
consequences that a confrontation would bring.
In order for such a strategy to be effective, the United States and
its allies must demonstrate that their forces in Europe represent a
credible deterrent. After two decades of shrinking resources, this will
require more work. Although U.S. personnel represent the United
States most important asset, the country must work to balance its
military personnel costs with the need to develop and deploy more
advanced and capable weapons. The Department of Defense, which
cannot afford cost overruns and inefficiencies, should continue to reform its acquisition processes. More broadly, the United States must
end the crippling effects of sequestration and prevent the gap between the requirements of the military and the resources available to
it from widening further. Other NATO countries must bear some of
the burden, too. They must round out the knowledge of counterinsurgency and stability operations that they have developed in Afghanistan with stronger war-fighting and counterterrorism capabilities.
Even as the United States invests in new technologies to offset the
strengths of its potential adversaries in the longer term, it must take
additional concrete steps. Developing an effective mix of permanently
forward-deployed and rotational forces, along with prepositioned
equipment and the capacity to rapidly reinforce U.S. forces in Europe
with troops from the continental United States, will deter Russia and
reassure U.S. allies of Washingtons commitment to do so. General
James Amos, the former commandant of the Marine Corps, said it
best when he noted, Forward presence builds trust that cannot be surged
when a conflict looms. As for what form this ramped-up presence
should take, the United States should preposition the equipment for
two or three additional armored brigades in eastern Europe, along
with the supplies to sustain those forces through at least two months
of intense conflict. The United States nuclear forces remain an
essential deterrent, too, so the country should maintain them,
enhancing the nuclear exercises that U.S. forces carry out with its
NATO allies to demonstrate their resolve and capability to Russia.
A WAY AHEAD
Even as the United States and its NATO allies focus on countering
Russia, they must not lose sight of the challenges of Islamist terrorism
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and population displacement, which are rooted in instability and poor

governance in the Middle East and North Africa. The United States
should be prepared to continue the fight against the Islamic State (also
known as ISIS), al Qaeda, and other terrorist groups for some time to
come. In this effort, however, U.S. forces should play a supporting
role: the main strategy should be to invest in institution building and
education, among other measures, to stabilize the poorly governed
spaces that give rise to terrorism and displaced populations. The
United States, in particular, must consider cooperating with foreign
governments whose democratic bona fides are less than perfect. At
the end of the day, the United States discomfort with some of the
governments in the Middle East should not hold back its efforts to
meet these challenges.
Of course, just as important as what the United States and its allies
should do is what they should not do. To let Russia know that its
illegal annexation of Crimea and invasion of the Donbas cannot stand,
the United States should not allow the sanctions regime to soften. It
should not choose the middle ground in Syria, in Iraq, in Libya, and
in other ungoverned spaces. The United States must lead: it should do
more to build up the defenses and civil societies of its most vulnerable
partners, and it must be willing to make the difficult choice to use
force when necessary.
Inaction and indecision on the part of the United States will have
consequences far beyond the immediate problems it seeks to address.
Unless the country demonstrates its resolve and makes the necessary
investments, its adversaries will continue to undermine U.S. interests,
and others around the world will lose respect for U.S. power. The cost
in blood and treasure to defend the United States and to come to the
aid of U.S. allies whose trust has been built up through decades of
shared sacrifice will be much greater in the future if the United States
fails to act now.
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Germanys New Global

Role
Berlin Steps Up
ver the past two decades, Germanys global role has undergone
a remarkable transformation. Following its peaceful reunification in 1990, Germany was on track to become an economic
giant that had little in the way of foreign policy. Today, however, the
country is a major European power that attracts praise and criticism
in equal measure. This holds true both for Germanys response to the
recent surge of refugeesit welcomed more than one million people
last yearand for its handling of the euro crisis.
As Germanys power has grown, so, too, has the need for the country
to explain its foreign policy more clearly. Germanys recent history is
the key to understanding how it sees its place in the world. Since
1998, I have served my country as a member of four cabinets and as
the leader of the parliamentary opposition. Over that time, Germany
did not seek its new role on the international stage. Rather, it emerged
as a central player by remaining stable as the world around it changed.
As the United States reeled from the effects of the Iraq war and the
EU struggled through a series of crises, Germany held its ground. It
fought its way back from economic difficulty, and it is now taking on
the responsibilities befitting the biggest economy in Europe. Germany
is also contributing diplomatically to the peaceful resolution of multiple conflicts around the globe: most obviously with Iran and in
Ukraine, but also in Colombia, Iraq, Libya, Mali, Syria, and the
Balkans. Such actions are forcing Germany to reinterpret the principles
that have guided its foreign policy for over half a century. But Germany
is a reflective power: even as it adapts, a belief in the importance of
FRANK-WALTER STEINMEIER is Foreign Minister of Germany.
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restraint, deliberation, and peaceful negotiation will continue to guide

its interactions with the rest of the world.
THE STRONG MAN OF EUROPE
Today both the United States and Europe are struggling to provide
global leadership. The 2003 invasion of Iraq damaged the United
States standing in the world. After the ouster of Saddam Hussein,
sectarian violence ripped Iraq apart, and U.S. power in the region
began to weaken. Not only did the George W. Bush administration
fail to reorder the region through force, but the political, economic,
and soft-power costs of this adventure undermined the United States
overall position. The illusion of a unipolar world faded.
When U.S. President Barack Obama assumed office in 2009, he
began to rethink the United States commitment to the Middle East
and to global engagements more broadly. His critics say that the president has created power vacuums that other actors, including Iran and
Russia, are only too willing to fill. His supporters, of which I am one,
counter that Obama is wisely responding to a changing world order
and the changing nature of U.S. power. He is adapting the means and
goals of U.S. foreign policy to the nations capabilities and the new
challenges it faces.
Meanwhile, the EU has run into struggles of its own. In 2004, the
union accepted ten new member states, finally welcoming the former
communist countries of eastern Europe. But even as the EU expanded,
it lost momentum in its efforts to deepen the foundations of its political
union. That same year, the union presented its members with an
ambitious draft constitution, created by a team led by former French
President Valry Giscard dEstaing. But when voters in France and the
Netherlands, two of the EUs founding nations, rejected the document,
the ensuing crisis emboldened those Europeans who questioned the
need for an ever-closer union. This group has grown steadily stronger
in the years since, while the integrationists have retreated.
Now, the international order that the United States and Europe helped
create and sustain after World War IIan order that generated freedom,
peace, and prosperity in much of the worldis under pressure. The
increasing fragility of various statesand, in some cases, their complete
collapsehas destabilized entire regions, especially Africa and the Middle
East, sparked violent conflicts, and provoked ever-greater waves of mass
migration. At the same time, state and nonstate actors are increasingly
July/August 2016
107
defying the multilateral rules-based system that has preserved peace and
stability for so long. The rise of China and India has created new centers
of power that are changing the shape of international relations. Russias
annexation of Crimea has produced a serious rift with Europe and the
United States. The rivalry between Iran and Saudi Arabia increasingly
dominates the Middle East, as the state order in the region erodes and
the Islamic State, or ISIS, attempts to obliterate borders entirely.
Against this backdrop, Germany has remained remarkably stable.
This is no small achievement, considering the countrys position in
2003, when the troubles of the United States and the EU were just
beginning. At the time, many called Germany the sick man of Europe:
unemployment had peaked at above 12 percent, the economy had
stagnated, social systems were overburdened, and Germanys opposition
to the U.S.-led war in Iraq had tested the nations resolve and provoked
outrage in Washington. In March of that year, German Chancellor
Gerhard Schrder delivered a speech in Germanys parliament, the
Bundestag, titled Courage for Peace and Courage for Change, in
which he called for major economic reforms. Although his fellow Social
Democrats had had the courage to reject the Iraq war, they had little
appetite for change. Schrders reforms to the labor market and the
social security system passed the Bundestag, but at a high political
price for Schrder himself: he lost early elections in 2005.
But those reforms laid the foundation for Germanys return to
economic strength, a strength that has lasted to the present day. And
Germanys reaction to the 2008 financial crisis only bolstered its
economic position. German businesses focused on their advantages in
manufacturing and were quick to exploit the huge opportunities in
emerging markets, especially China. German workers wisely supported
the model of export-led growth.
But Germans should not exaggerate their countrys progress. Germany has not become an economic superpower, and its share of world
exports was lower in 2014 than in 2004and lower than at the time
of German reunification. Germany has merely held its ground better
than most of its peers in the face of rising competition.
EUROPES PEACEFUL POWER
Germanys relative economic power is an unambiguous strength. But

some critics see the countrys military restraint as a weakness. During
Schrders chancellorship, Germany fought in two wars (in Kosovo
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Steinmeier at a meeting of EU foreign ministers in Brussels, July 2014
T HOMAS KO EHLE R / G ET TY IMAG ES
and Afghanistan) and adamantly opposed the unleashing of a third (in

Iraq). The military engagements in Kosovo and Afghanistan marked
a historic step for a nation that had previously sought to ban the word
war from its vocabulary entirely. Yet Germany stepped up because
it took its responsibility for the stability of Europe and its alliance
with the United States seriously. Then as now, German officials shared
a deep conviction that the countrys security was inextricably linked
to that of the United States. Nevertheless, most of them opposed the
invasion of Iraq, because they saw it as a war of choice that had dubious
legitimacy and the clear potential to spark further conflict. In Germany,
this opposition is still widely considered a major achievementeven
by the few who supported U.S. policy at the time.
In the years since, Germanys leaders have carefully deliberated
whether to get involved in subsequent conflicts, subjecting these
decisions to a level of scrutiny that has often exasperated the countrys
allies. In the summer of 2006, for example, I helped broker a ceasefire in Lebanon to end the war between Israel and Hezbollah. I believed
Germany had to support this agreement with military force if necessary, even though I knew that our past as perpetrators of the Holocaust made the deployment of German soldiers on Israels borders a
particularly delicate matter. Before embracing the military option, I
invited my three immediate predecessors as foreign minister to Berlin
July/August 2016
109
for advice. Together they brought 31 years of experience in office to

the table. Germanys history weighed most heavily on the eldest among
us, Hans-Dietrich Genscher, a World War II veteran, who argued
against the proposal. My younger two predecessors agreed with me,
however, and to this day, German warships patrol the Mediterranean
coast to control arms shipments to Lebanon as part of the United
Nations Interim Force in Lebanonan arrangement accepted and
supported by Israel.
Germanys path to greater military assertiveness has not been linear,
and it never will be. Germans do not believe that talking at roundtables
solves every problem, but neither do they think that shooting does.
The mixed track record of foreign military interventions over the past
20 years is only one reason for caution. Above all, Germans share a
deeply held, historically rooted conviction that their country should
use its political energy and resources to strengthen the rule of law in
international affairs. Our historical experience has destroyed any
belief in national exceptionalismfor any nation. Whenever possible,
we choose Recht (law) over Macht (power). As a result, Germany
emphasizes the need for legitimacy in supranational decision-making
and invests in UN-led multilateralism.
Every German military deployment faces intense public scrutiny
and must receive approval from the Bundestag. Germans always seek
to balance the responsibility to protect the weak with the responsibility
of restraint. If Germanys partners and allies walk an extra mile for
diplomacy and negotiations, Germans want their government to walk
one mile further, sometimes to our partners chagrin. That does not
mean Germany is overcompensating for its belligerent past. Rather,
as a reflective power, Germany struggles to reconcile the lessons of
history with the challenges of today. Germany will continue to frame
its international posture primarily in civilian and diplomatic terms
and will resort to military engagement only after weighing every risk
and every possible alternative.
EMBRACING A GLOBAL ROLE
Germanys relative economic strength and its cautious approach to

the use of force have persisted as the regional and global environment
has undergone radical change. Germanys partnership with the
United States and its integration into the EU have been the main
pillars of its foreign policy. But as the United States and the EU
110
have stumbled, Germany has held its ground and emerged as a

major power, largely by default.
In this role, Germany has come to realize that it cannot escape its
responsibilities. Since Germany sits at the center of Europe, neither
isolation nor confrontation is a prudent policy option. Instead, Germany
tries to use dialogue and cooperation to promote peace and end conflict.
Consider Germanys new role in the Middle East. For decades, the
Arab-Israeli conflict dominated the regions political landscape. In the
decades after World War II, Germany deliberately avoided a role at
the forefront of diplomatic efforts to resolve the standoff. But today,
as conflicts have spread, Germany is engaging more broadly across the
region. Since 2003, when multilateral efforts to dissuade Iran from
building a nuclear bomb began, Germany has played a central role,
and it was one of the signatories to the agreement reached in 2015.
Germany is also deeply involved in finding a diplomatic solution to
the conflict in Syria.
Nor is Germany shying away from the responsibility to help
construct a new security architecture in the regiona process for
which the Iran deal may have paved the way. Europes history offers
some useful lessons here. The 1975 Helsinki conference helped
overcome the continents Cold Warera divisions through the creation of the Organization for Security and Cooperation in Europe. If
regional players choose to look at that example, they will find useful
lessons that might assist them in addressing their current conflicts.
Sometimes Germans need others to remind us of the usefulness of
our own history. Last year, for example, I had an inspiring conversation with a small group of intellectuals in Jeddah, Saudi Arabia. One
of them remarked, We need a Westphalian peace for our region.
The deal that diplomats in Mnster and Osnabrck hammered out in
1648 to separate religion from military power inspires thinkers in the
Middle East to this day; for a native Westphalian like me, there could
be no better reminder of the instructive power of the past.
RISING TO THE CHALLENGE
Closer to home, the Ukraine crisis has tested Germanys leadership

and diplomatic skills. Since the collapse of Viktor Yanukovychs
regime and the Russian annexation of Crimea in early 2014, Germany
and France have led international efforts to contain and ultimately solve
the military and political crisis. As the U.S. government has focused
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111
on other challenges, Germany and France have assumed the role of

Russias main interlocutors on questions concerning European security
and the survival of the Ukrainian state.
Germany did not elbow its way into that position, nor did anyone
else appoint it to that role. Its long-standing economic and political
ties to both Russia and Ukraine made it a natural go-between for both
sides, despite Berlins obvious support for the victims of Moscows
aggression. The intense political debate
played out within Germany over
Perhaps no other European that
how to respond to the challenge only
nations fate is so closely
enhanced Berlins credibility, by showing
connected to the existence the world that the government did not
take its decisions lightly. The Minsk
and success of the EU.
agreement that Germany and France
brokered in February 2015 to halt hostilities is far from perfect, but one thing is certain: without it, the conflict
would have long ago spun out of control and extended beyond the
Donbas region of Ukraine. Going forward, Germany will continue
to do what it can to prevent the tensions from escalating into a new
Cold War.
During the euro crisis, meanwhile, Germany was forced to confront
the danger posed by the excessive debt levels of some Mediterranean EU
states. The overwhelming majority of the eurozones members and the
International Monetary Fund supported plans to demand that countries
such as Greece impose budgetary controls and hard but unavoidable
economic and social reforms to ensure the eventual convergence of the
economies of the eurozone. But rather than placing the responsibility
for such changes in the hands of these countries national elites, many
in Europe preferred to blame Germany for allegedly driving parts of
southern European into poverty, submission, and collapse.
Germany has come under similar criticism during the ongoing
refugee crisis. Last autumn, Germany opened the countrys borders
to refugees, mainly from Iraq and Syria. The governments of the
Czech Republic, Hungary, and Slovakia worried that this move would
worsen the crisis by encouraging more refugees to enter their countries
in the hope of eventually crossing into Germany. So far, however,
such fears have proved unfounded.
How and when Europe will resolve this crisis remains unclear.
What is clear, however, is that even a relatively strong country such as
112
Germany cannot do it alone. We cannot give in to the rising desire of

certain groups of the electorate to respond on a solely national level,
by setting arbitrary limits on the acceptance of refugees, for example.
Germany cannot and will not base its foreign policy on solutions that
promise quick fixes but in reality are counterproductive, be they walls
or wars.
A reflective foreign policy requires constant deliberation over hard
choices. It also requires flexibility. Consider the recent refugee deal
Germany helped the EU strike with Turkey. Under this agreement,
the EU will return to Turkey any migrant who arrives illegally in
Greece and in return will open a legal path for Syrians to come to the
EU directly from Turkey. The agreement also contains provisions for
much deeper cooperation between the EU and Turkey. Despite
controversial developments within Turkey, such as the escalation of
violence in the Kurdish regions and the increasing harassment of the
media and the opposition, Germany recognized that Turkey had a
critical role to play in the crisis and that no sustainable progress could
be made without it. No one can tell today whether the new relationship
will be constructive in the long term. But there can hardly be progress
or humane management of the EUs external border unless European
leaders engage seriously with their Turkish counterparts.
Some politicians, such as the former Polish foreign minister Radek
Sikorski, have described Germany as Europes indispensable nation.
Germany has not aspired to this status. But circumstances have forced
it into a central role. Perhaps no other European nations fate is so
closely connected to the existence and success of the EU. For the first
time in its history, Germany is living in peace and friendship with
France, Poland, and the rest of the continent. This is largely due to
the renunciation of complete sovereignty and the sharing of resources
that the EU has encouraged for almost 60 years now. As a result,
preserving that union and sharing the burden of leadership are
Germanys top priorities. Until the EU develops the ability to play a
stronger role on the world stage, Germany will try its best to hold as
much ground as possiblein the interests of all of Europe. Germany
will be a responsible, restrained, and reflective leader, guided in chief
by its European instincts.
July/August 2016
113
The Future of U.S.-Saudi

Relations
The Kingdom and the Power
he relationship between the United States and Saudi Arabia

has come under unprecedented strains in recent years. U.S.
President Barack Obama has openly questioned Riyadhs
value as an ally, accusing it of provoking sectarian conflict in the
region. According to The Atlantics Jeffrey Goldberg, when Malcolm
Turnbull, Australias prime minister, asked Obama whether he saw
the Saudis as friends, the president responded, Its complicated.
Many Americans continue to believe that the Saudi government was
involved in the September 11, 2001, attacks, although the 9/11 Commission found no evidence of institutional or senior-level Saudi
support. The Senate has even passed a bill that would allow Americans
to sue the Saudi government in U.S. courts for its alleged support
of terrorism.
The Saudis have been equally intemperate in their recent
comments. The kingdoms officials have threatened to sell off
hundreds of billions of dollars of U.S. assets if Congress passes the
bill, even though such a move would hurt Saudi Arabia much more
than it would the United States. And they have made little effort to
hide their contempt for Obama, whom they see as too willing to
jettison old friends in order to cozy up to enemies. Prince Turki alFaisalthe most outspoken senior member of the ruling family
and a former head of Saudi foreign intelligence and former
ambassador to the United Stateshas accused Obama of throw[ing
Saudi Arabia] a curve ball because he has pivoted to Iran. The
prince went on to say that the Saudis would continue to hold the
F. GREGORY GAUSE III is Professor of International Affairs and John H. Lindsey 44 Chair
at the Bush School of Government and Public Service at Texas A&M University.
114
American people as [an] allybut implied that they no longer

view the American president as one.
Several pillars of the two countries relationship, built after World
War II, have started to fracture. The Cold War, which once united the
unlikely allies against the Soviets, has long since ended. With Saddam
Husseins downfall in Iraq, the threat of an overt military attack on
Saudi Arabia or its smaller Gulf neighbors has faded. And the upsurge
in domestic U.S. oil production has revived dreams of American
energy independence.
As the foundations of the relationship have weakened, its American
critics have grown bolder. They point out that Wahhabism, the
ultraconservative form of Islam that Saudi Arabia promotes,
directly contradicts American values and that Saudi Arabia stands
near the bottom of any world ranking on democracy, religious
freedom, human rights, and womens rights. They argue that the
Saudi regime, an absolute monarchy in a democratic age, is so anachronistic that it will not survive much longer. And they emphasize
the fact that the Saudis share few priorities with the United States
in the Middle East. As Washington is attempting to develop a new
relationship with Tehran, the Saudis continue to fear Iranian
encirclement; they refuse to concentrate their resources on the fight
against the Islamic State (also known as ISIS) and al Qaeda and
have instead demanded that the United States support their parochial
military adventures in Yemen and elsewhere.
To these critics dismay, however, both countries continue to work
together closely. Obama, for all his public misgivings, went to Riyadh
in April to attend the Gulf Cooperation Council summit, where
he reiterated his commitment to the security of Saudi Arabia and
the other Gulf states. Washington continues to sell vast quantities of
arms to Riyadh. The Saudis, for their part, have held their noses and
publicly endorsed the Iran nuclear deal. And intelligence sharing
continues apace.
While such cooperation may cause critics to gnash their teeth, it
serves both countries well. The United States has a crucial interest in
maintaining a clear-eyed but close relationship with Saudi Arabia. As
political authority collapses throughout the Middle East, Washington
needs a good working relationship with one of the few countries that
can govern its territory and exert some influence in those areas where
real governance no longer exists. Although their strategic visions may
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115
diverge, the two countries still share many goals. Both see ISIS and
al Qaeda as direct threats. Neither wants Iran to dominate the region.
Both want to avoid any disruption to the vast energy supplies that
flow through the Persian Gulf. And both would like to see a negotiated
solution to the Israeli-Palestinian conflict. More still unites Washington
and Riyadh than divides them.
GROWING APART
The United States and Saudi Arabia came together in the aftermath
of World War II, the first war in which oil was a strategic commodity.
U.S. military planners worried about access to oil in any future
conflict. The Saudis had lots of it, and U.S. companies had begun
to develop the Saudi oil industry. Access to cheap energy was also
essential for U.S. plans to rebuild the destroyed economies of Western
Europe and Japan. For their part, the Saudis recognized that British
power, which had shaped the postWorld War I Middle East, was
receding and that they had more in common with Washington than
with Moscow in the emerging Cold War. They had already thrown
in their lot with U.S. oil companies; joining the U.S. side in the
emerging bipolar world made perfect sense, even though the two
countries disagreed profoundly on Arab-Israeli issues: the biggest
crisis in U.S.-Saudi relations before the 9/11 attacks was the Saudi oil
embargo during the 1973 Arab-Israeli war. But common geopolitical
and economic interests were enough to sustain the relationship,
despite the differences over Israel.
Today, however, the situation has changed. The two countries still
share interests, but they have different priorities. And they disagree
on how to respond to Irans growing power.
The Obama administrations top priority in the region is rolling
back and ultimately destroying Salafi jihadist groupsabove all, ISIS
and al Qaeda. These groups may not represent an existential threat to
the United States, but they do pose an immediate danger to the country and its allies. The Obama administrations other major goal is to
limit Irans ability to develop a nuclear weapon, an objective that the
recent international agreement has achieved. After the deal, Washington hoped to engage Tehran in regional diplomacy, particularly over
Syria, and perhaps even to normalize relations. The administration
has not yet realized those hopes, but Obama clearly wants to cooperate with Iran even as he seeks to limit its influence.
116
Grin and bear it: Barack Obama and King Salman in Riyadh, April 2016
KEVIN LAMARQU E / REUT E RS
Washington cares much less about other regional goals. Ever since
the administrations early efforts to jump-start the Israeli-Palestinian
peace process foundered, the U.S. government has moved the issue to
the back burner. And in Syria, although the Obama administration
has repeatedly said that President Bashar al-Assad must step down as
part of a negotiated settlement to the civil war, it has done little to
make that happen. The United States has provided scant support to
the Syrian opposition, and ever since August 2013, when Obama
backed down from the redline he had drawn over the use of chemical
weapons, it has stopped threatening to attack Assad directly. ISIS, not
the Assad regime, now finds itself in Washingtons cross hairs.
Saudi Arabias priorities are almost exactly the opposite. Saudi kings
rarely set out their foreign policy priorities in speeches or published
national security strategies. But the regimes actions make clear that
its top priority is to roll back Iranian influence across the region. Thus, in
Syria, the Saudis are directing their financial, intelligence, and diplomatic resources not primarily against ISIS but against the Assad regime.
And the Saudi air force, which had initially joined the U.S.-led campaign against ISIS in 2014, has turned its attention to Iranian-backed
rebels in Yemen.
The Saudis see all regional politics through the lens of Iranian
advances and, in their more honest moments, through the lens of their
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117
own failure to counter such moves earlier. Even before the Arab Spring,
the Saudis were on a losing streak. In Iraq, which had previously
helped block Iranian access to the Arab world, Tehrans influence grew
to unprecedented levels after the 2003
U.S.-led invasion. In Lebanon, after
The United States has
Syrian forces withdrew from the couna crucial interest in
try in 2005, the Saudis supported a
coalition of political parties known as
maintaining a clear-eyed
the March 14 alliance, which competed
but close relationship
against Irans ally Hezbollah and variwith Saudi Arabia.
ous pro-Syrian politicians. But even
though the March 14 alliance won the
2005 and 2009 parliamentary elections, Hezbollah continued to dominate Lebanese politics, conducting its own foreign policy and defying the government at will. As for the Palestinian territories, after
Hamas won the 2006 parliamentary elections there, the Saudis brokered a deal between it and the Palestinian Authority, but the pact
soon collapsed, and Hamas moved even closer to Iran.
The Arab Spring only heightened Riyadhs sense of encirclement.
When protesters toppled Egyptian President Hosni Mubarak, the
Saudis lost one of their most reliable partners. And they blamed the
United States, which they saw as having abandoned a loyal ally. They
reacted by shoring up states in their own backyard, sending troops
into Bahrain to support the Sunni ruling family against a popular
uprising by its Shiite-majority population. Although an independent
inquiry sponsored by the Bahraini government found no evidence of
direct Iranian involvement in the protests, the Saudis continue to
blame Tehran for instigating unrest among Shiites in the Gulf
monarchies, including Saudi Arabia itself.
The Saudis see the Syrian uprising against Assad as their best
chance to reverse Irans geopolitical gains. They are not happy about
the prominent role that ISIS and al Qaeda are playing in the civil war,
but they argue that the first step in reducing these extremists appeal
among Sunnis in Syria and elsewhere should be getting rid of Assad.
The Saudis also question why the Obama administration has proved
so reluctant to support them in this conflict, despite its public position
that Assad must go. Many Saudis doubt Obamas credibility; some
even wonder if he has secretly decided to support Shiite Iran over the
United States traditional Sunni allies.
118
The Saudis fixation on Iran also explains their intervention in

Yemen, which they have long seen as within their sphere of influence.
After the 2011 Arab Spring uprising there, Saudi Arabia led a diplomatic effort that secured the resignation of President Ali Abdullah
Saleh and the formation of a national unity government. Then, in
2014, a rebel militia captured the capital, Sanaa. The Houthis, as the
rebel group is known, draw their support from the countrys Shiite
north. Yemens Shiites belong to the Zaydi sect, which practices a different form of Shiism from the form that Iranians practice; historically, tribalism and regional identity, not sectarianism, have dominated
Yemeni politics. Nonetheless, since the Houthis emerged in the first
decade of this century, they have adopted the rhetoric of the Iranian
Revolution and looked to Tehran for aid. By all accounts, Iran had no
role in the movements origins, and the Iranians have provided the
group with only limited support ever since. Yet the Saudis still see the
growth of Houthi power in Yemen as part of an Iranian effort to
dominate the Arab world and surround the kingdom. This perception
explains why when the Houthis moved to capture the port city of
Aden in March 2015, Saudi Arabia responded by launching air strikes
and the United Arab Emirates, which also seeks to contain Iran, sent
troops to Yemen to check the Houthi advance.
The chaos in Yemen encapsulates the common interests and
differing priorities that define the U.S.-Saudi relationship. The Obama
administration has focused on fighting al Qaeda and has launched
frequent drone strikes against the militants in Yemen. But the Saudi
campaign against the Houthis has opened up territory, particularly in
Yemens south, where ISIS and al Qaeda now operate freely. Even
though the United States has no particular quarrel with the Houthis,
it has provided logistical support for the Saudi-led campaign against
them. Washingtons desire to mend fences with Riyadh after the Iran
nuclear deal, and to sustain a cooperative relationship more generally,
has prevailed over its misgivings.
ITS COMPLICATED
Critics in the U.S. foreign policy establishment point to such

strategic contradictions when making the case that the United States
should dump Saudi Arabia as an ally. But their strongest argument
concerns Saudi support for the fundamentalist Wahhabi, or Salafi,
interpretation of Islam. As Chris Murphy, a Democratic senator
July/August 2016
119
from Connecticut, argued in a January 2016 speech, Though ISIS

has perverted Islam . . . the seeds of this perversion are rooted in a
much more mainstream version of the faith that derives, in substantial part, from the teachings of Wahhabism. He went on to
demand that Washington end its effective acquiescence to the Saudi
export of intolerant Islam.
Much of Murphys case against the kingdom was well founded.
Wahhabism is indeed intolerant, puritanical, and xenophobic, and
Saudi Arabia has spent billions of dollars promoting it since the oil
boom of the 1970s. Furthermore, ISIS and al Qaeda do share many
elements of the Wahhabi worldview, especially regarding the role of
Islam in public life.
Yet Murphys argument missed a critical detail: the fact that Saudi
Arabia has not controlled the global Salafi-Wahhabi movement since
the 1980s and that since the 1990s that movement has turned its sights
on the Saudi regime itself. The Salafism
Saudi Arabia started exporting to
The Saudis see all regional that
the Muslim world in the 1970s was, like
politics through the lens of the version the Saudis practice at home,
politically passive. It enjoined believers
Iranian advances.
to accept their governments as long as
they were at least nominally Muslim.
During the jihad against the Soviet Union in Afghanistan, however
which both the United States and Saudi Arabia supported
international Salafism morphed into a revolutionary movement.
Al Qaeda grew out of that movement, as did ISIS. Yet both groups
despise the Saudis, in part because of their ties to the United States
and in part because official Saudi clerics regularly condemn the groups
for their deviations from the true path.
What all of this means is that no amount of U.S. pressure on Saudi
Arabia will alter the trajectory of Salafi jihadism, for that ideological
movement is now independent of Saudi control. It is true that some
young Saudis, schooled in conservative Wahhabism, have gone on to
join the terrorist groups. But Saudi Arabia is hardly the main supplier
of ISIS recruits today; that dubious distinction goes to Tunisia, the one
democratic success to emerge from the Arab Spring and among the
most secular of Arab societies. As for the many Westerners who have
also joined the group, it is hard to see how Saudi Wahhabism is
responsible for their choices.
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For all of these reasons, working with the Saudis to fight ISIS,
al Qaeda, and similar organizations is more effective than ostracizing
the kingdom would be. U.S. intelligence agencies already cooperate
with Riyadh extensively, and the results have been impressive. In
2010, a Saudi intelligence tip led to the foiling of a plot to send
explosives from Yemen to the United States by courier. Last August,
collaboration among the intelligence agencies of Lebanon, Saudi
Arabia, and the United States led to the arrest in Beirut of Ahmed alMughassil, who is accused of masterminding the 1996 Khobar
Towers bombing in Saudi Arabia that killed 19 U.S. airmen. Many
other successes have never become public. And although individual
Saudis continue to send money to Salafi jihadist organizations, David Cohen, until February 2015 the U.S. undersecretary of the treasury for terrorism and financial intelligence (now deputy director of
the CIA), has said that the Saudi government is deeply committed
to ensuring that no money goes to ISIL [as U.S. government officials
refer to ISIS], al Qaeda, or the Nusra Frontthe last al Qaedas
official affiliate in Syria.
On the ideological battlefield, efforts by Saudi clerics to delegitimize
Salafi jihadism might seem hypocritical to Westerners, given the
benighted views these clerics themselves hold. But attacking the
jihadist message from within its own worldview works much better
than Western-led propaganda efforts. Washington should do what it
can to encourage the development of liberal and tolerant interpretations
of Islam. But since it will always be an outsider in these debates, it
needs to encourage the insidersincluding the Saudiswho are already
fighting this battle.
HERE TO STAY
Critics also point to the rise in U.S. oil production as evidence that
the U.S.-Saudi alliance has outlived its purpose. But the ties between
the two countries have never been about American access to Saudi
hydrocarbons. In fact, when the relationship began in the early decades
of the Cold War, the United States did not import a drop of oil from
the Arabian Peninsula. What has always undergirded the relationship
is the importance of Saudi (and the rest of the regions) oil to the
global market. The Persian Gulf still produces about 30 percent of the
worlds oil, with Saudi Arabia accounting for over a third of that output.
Disruptions in the Gulf thus continue to reverberate worldwide.
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121
To see how important a role Saudi policy still plays in the global
market, just ask shale oil producers in North Dakota and Texas how
the recent collapse in global prices has affected their business. Although
that collapse was largely the result of a surge in supply caused by those
same drillers, Saudi Arabias decision not to cut its production in response
to that glut also played a huge role. Put simply, no other country wields
more influence in the global oil marketyet another reason why
Washington still needs Riyadh.
The last argument frequently made against preserving U.S. ties
with the Saudi government has to do with the regimes supposed
fragility, which some experts argue makes Riyadh too fragile to serve
as a reliable long-term partner. Very few analysts predict that the
House of Saud is likely to fall sometime
soon. But many point to the myriad
The regime has survived,
problems within the kingdom and ask
again and again. It will
whether the United States should at
probably continue to do so least take the prospect of the regime
crumbling more seriously. Last October,
for some time.
John Hannah, who was Vice President
Dick Cheneys national security adviser,
described how the combination of falling oil prices, tensions in the
Saudi ruling family, and regional crises could eventually coalesce into
a perfect storm that significantly increases the risk of instability within
the kingdom.
There is no doubt that Saudi Arabia faces some serious problems.
First among them, the country remains utterly dependent on oil at a
time when prices have crashed. Yet this argument overlooks Riyadhs
substantial cash reserves, which total more than $550 billion and have
helped the government cushion the blow so far. If prices stay low and
the kingdom keeps spending money at its current rate, it could run
through those reserves in about five years. It does not, however, face
an immediate fiscal crisis, and it can easily borrow against its petroleum
reserves. When oil prices collapsed in the 1980s, the Saudis sustained
budget deficits for more than 20 years by running down their financial
reserves and by borrowing domestically and, to a lesser extent, on
international markets. By the end of the 1990s, Saudi government
debt had risen to over 100 percent of GDP. Today, that number is less
than ten percent. The wolf might be in the neighborhood, but it is not
yet at the door.
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It is also true, as the doomsayers point out, that the monarchy is

going through a tumultuous leadership transition. Ever since 1953,
the country has been led by sons of the kingdoms founder, Abd alAziz ibn Saud. But the current king, Salman, who is 80 years old, will
be the last monarch from that generation. For years, palace watchers
have speculated about how leadership would be transferred to the
next generation. King Salman has since settled that question, at least
for now, by placing enormous power in the hands of his nephew
Prince Muhammad bin Nayif and his son Prince Muhammad bin
Salman. The former, a veteran Saudi politician in his mid-50s, is a
familiar figure; the latter is relatively new to the political scene. Only
30 years old, Muhammad bin Salman has been put in charge not only
of the Defense Ministry but also of economic and oil policy, making
him the second most powerful person in the country. And he has not
hesitated to use that power. He announced plans to privatize part of
Saudi Aramco, the state oil company, has made himself the public
face of the kingdoms controversial campaign in Yemen, and recently
unveiled an ambitious plan, Saudi Vision 2030, to reduce the
countrys dependence on oil. The Saudis have made some preliminary
moves to implement the planthey have reduced subsidies on water
and electricity, and in May, Salman replaced the countrys longserving oil minister and reorganized a number of government
departmentsbut it remains unclear whether they will meet their
ambitious targets.
Salmans decision to concentrate so much authority in the hands of
just two family members has caused grumbling among the other
powerful royal cousins, many of whom expected to inherit at least
some of the influence their fathers wielded in the old, more consensual
days. This grumbling has given rise to plenty of rumorsa common
feature of court politicsbut so far, no signs of a serious feud have
materialized. The jousting today is nothing like what occurred in the
late 1950s and early 1960s, when King Saud and Crown Prince Faisal
openly struggled for power, leading to frequent changes in top officials,
long absences from the country by senior princes, the strategic deployment of military units loyal to different princes, and the intervention
of the religious establishment into family politics.
Then as now, many Middle East watchers predicted that such
conflict would spell the end of the Saudi regime. They also pointed to
external forces: first the republican Arab nationalism of Gamal Abdel
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Nasser and then the Iranian Revolution of 1979. In 2003, Robert Baer,
a well-informed former U.S. intelligence official, writing in The
Atlantic, said that signs of impending disaster are everywhere and
that sometime soon, one way or another, the House of Saud is coming
down. In 2011, Karen Elliott House, a respected journalist, warned in
The Wall Street Journal that the Arab Spring would soon wash over
Saudi Arabia as well. Yet the regime has survived, again and again.
And it will probably continue to do so for some time.
FRIENDS WITH BENEFITS
Washingtons relationship with Riyadh will never find many enthusiastic

defenders in the United States. Saudi Arabias human rights abuses,
its promotion of religious fundamentalism, its obsession with Iran,
and its refusal to focus on fighting U.S. enemiesall raise the question
of whether the Saudis are worth the trouble.
They are. Intelligence cooperation against Salafi jihadist groups
benefits both the United States and Saudi Arabia, and efforts to reduce
the financial resources available to terrorists have proved particularly
successful. On energy, sustaining a working relationship will not mean
that the Saudis will always do what Washington wants when it comes
to adjusting production levels, but it does mean that they will at least
listen to U.S. arguments. Then there are the tens of thousands of
U.S.-educated Saudis, many of whom are working to bring about
gradual reform and want to maintain a strong relationship with the
United States. If Washington initiated a public divorce, it would cut
this influential community off at the knees.
More important, the United States should not distance itself from
one of the few Arab countries still able to govern itself and influence
events in the region. Weak and failed states lie at the root of todays
crises in the Middle East. From Libya to Iraq and Syria to Yemen,
political vacuums have created civil wars, drawn in regional powers,
and provided safe havens for terrorists and extremists.
The Obama administrations overtures toward Iran make enormous
geopolitical sense in this context. Iran governs its territory fairly
effectively and wields influence over many of these civil wars. Unlike
ISIS and al Qaeda, it also has an address and a phone number.
Americans can talk to the Iranians and deal with them using normal
diplomatic tools: incentives and deterrents, carrots and sticksjust
what led to the nuclear deal.
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The same is true of Saudi Arabia. It maintains relative domestic

stability in a chaotic region, and it helps shape the political fights that
are determining the future of that region. Compared with the Iranian
regime, however, Riyadh shares more foreign policy goals with Washington and is far more eager to cooperate.
Washington should thus maintain the relationship for now, while
acknowledging its limits. The two countries differences in priorities
will not disappear anytime soon. The next U.S. president will probably
not take stronger action against the Assad regime and will inevitably
focus more on ISIS and al Qaeda than on Iran and its allies. But
strengthening U.S.-Saudi ties will not require grand gestures. It
simply needs better management. Washington should reaffirm the
importance of the security relationship, nurture daily cooperation
on important issues such as counterterrorism, and encourage some
honesty, from both sides, about their different goals, so that neither
will surprise the other. The reason the Syrian redline incident alarmed
the Saudis so much is because Obamas decisions caught them
completely unawares.
In Yemen, the United States can use its influence over Saudi
Arabia to help it find an exit ramp. A Houthi delegation visited
Riyadh in April 2016, suggesting that the Saudis arent opposed to a
political solution to the crisis. Yemen has suffered from instability
for years, and no new deal will change that. But an agreement that
restored a mutually acceptable government in Sanaa and limited the
military reach of the Houthis to their natural base in Yemens north
would represent an improvement over the current situation. It might
also allow a new Yemeni government to concentrate its resources on
the ISIS and al Qaeda presence in the country. There are encouraging
signs that the Saudis and the Emiratis are now concentrating some
of their military efforts in Yemen against al Qaeda.
The Saudis still need U.S. arms and military training. Washington
should provide both, but it should do so in a way that nudges the
Saudis toward a more accommodating relationship with the Iraqi
government. Although the Saudis have finally reestablished their
embassy in Baghdad, they have refused to offer tangible political,
diplomatic, or financial support to Iraqi Prime Minister Haider alAbadi, which has weakened his efforts to build an Iraqi government
that is less reliant on Iran. Were the Saudis to change course, it
could pay long-term dividends, both in the fight against ISIS and in
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helping reduce the animosity between Sunni Iraqis and the central
government. The United States and Saudi Arabia would both benefit, and Iran would lose its exclusive influence in Baghdad.
What Washington should not do, however, is encourage the Saudis
to share the region with Iran, as Obama has expressed an interest in
doing. The Saudis would interpret any U.S. effort to mediate between
Riyadh and Tehran, or even any calls for Saudi Arabia to come to
terms with Iran, as an effort to consolidate Iranian gains at the expense
of the Saudis and their allies. Washington should simply continue its
own cautious effort to improve its relations with Tehran. The Saudi
leadership is made up of supreme realiststhat is how they have
stayed in power for so longand should U.S.-Iranian ties improve,
the Saudis will read the tea leaves and adjust to the new reality on
their own. Furthermore, the collapse of oil prices might do more to
bring Riyadh and Tehran to the table in the next year than anything
that Washington could do or say.
Such arguments for sustaining a positive but transactional alliance
with Saudi Arabia have little emotional appeal. Relationships based
on common interests rather than common values rarely do. But in a
Middle East that shows no signs of stabilizing anytime soon, it would
be foolish for Washington to ignore how much it benefits from a close
relationship with Riyadh.
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The Truth About

American Unemployment
How to Grow the Countrys Labor Force
Jason Furman
n the wake of the financial crisis of 2008 and the Great Recession
that followed, many economists worried that even if the U.S.
economy improved, unemployment would remain high for years
to come. Some warned darkly of a jobless recovery. Those fears have
proved unfounded: since peaking at ten percent in October 2009, the
U.S. unemployment rate has fallen by half and is now lower than it
was in the years leading up to the crisis. Beyond the basic unemployment
rate, a broad range of evidence shows that the labor market has largely
returned to good health. Compared with earlier in the recovery, far
fewer workers are underemployed or underutilized. Long-term
unemployment has fallen steadily, from an all-time high of four percent
of the labor force in early 2010 to just over one percent today. And
adjusting for inflation, average hourly wages have been increasing for
more than three years.
Yet one aspect of the labor market has stubbornly refused to
improve: the labor-force participation rate. The share of Americans at
least 16 years old who are working or looking for work remains three
percentage points lower today than it was prior to the onset of the
recession in December 2007. This is the case even though the unemployment rate has improved, because the unemployment figure does not
include those who have left the work force altogether.
Most of the decline in the labor-force participation rate has resulted
from a large retirement increase that began in 2008. That year, the
oldest baby boomers turned 62 and became eligible for Social Security.
An aging population, however, cannot fully account for the drop:
JASON FURMAN is Chair of the White Houses Council of Economic Advisers, the chief
economist to the U.S. president. Follow him on Twitter @CEAChair.
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Jason Furman
labor-force participation is down even among prime-age adultsthose

between the ages of 25 and 54.
That decline is not unique to this particular economic recovery.
Instead, it is the continuation of a troubling pattern that began among
men more than 60 years ago and among women about 15 years ago. In
1953, 97 percent of prime-age American
men participated in the labor force;
In 1953, 97 percent of
today, that figure is down to 88 percent.
prime-age American men In 1999, after decades during which
millions of women began to work outparticipated in the labor
force; today, that figure is side the home, 77 percent of prime-age
American women participated in the
down to 88 percent.
labor force. Today, that figure has fallen
to 74 percent. During both time periods,
the United States experienced larger
drops in labor-force participation rates and lower overall participation
than most other advanced economies.
It is possible to view a drop in overall labor-force participation
rates as a sign of progress: more people can now support themselves
in retirement without having to continue working into old age, and
many others are opting to stay in school longer, or raise families, or
simply work less and enjoy more leisure time. But the evidence is
mounting that the decline in prime-age participation represents a
genuine problem for the U.S. economy and for American society.
First, it poses a challenge to sustainable long-term economic growth,
as a larger share of the population becomes more dependent on the
economic output of a relatively smaller group of workers. Second, and
even more important, is the human toll of involuntary joblessness.
The loss of earnings from workers who move out of the labor force
puts enormous strain on households, affecting not only workers themselves but also their spouses, children, and other dependents. Many
people who stay out of work for long periods find that their incomes
remain lower even when they ultimately manage to find new jobs.
The effects of joblessness also reach far beyond household finances.
For decades, researchers have found that long-lasting unemployment
can have severe consequences for mental health, physical health, and
even mortality. Recent years have seen a massive increase in opioid
drug abuse and an associated rise in overdose deaths and suicides
among Americans without college degreesthe same group that has
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Skills to pay the bills: iron-working apprentices training in West Virginia, March 2012
seen its labor-force participation decline most precipitously over the

past five decades. In other words, a lack of work doesnt simply mean
less income. It can lead to more profound losses as well.
The good news is that there are a number of things that the government can do to help address the problem; indeed, the fact that the
widespread decline in labor-force participation has played out
differently in different countries only underscores the extent to which
economic policy can make a difference. U.S. President Barack Obama
has outlined a set of bold policiesmany of which depart from
simplistic orthodox prescriptionsthat would significantly improve
how the U.S. labor market functions and help more Americans obtain
higher-paying jobs.
FROM FOOTNOTE TO HEADLINE
JASON COHN / REUTE RS
Labor-force participation tends to decline in recessions, as more

people exit the work force and fewer people enter it. That short-term
effect tends to fade away as the economy recovers. But in recent decades,
longer-term trends have drowned out those short-term cycles. For
example, after recovering from the recession of 199091, the U.S.
economy enjoyed an almost unprecedented boom during the rest of
the 1990s. Yet by 2000, neither the labor-force participation rate
for prime-age men nor their employment-population ratio (a related
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Jason Furman
measure that includes only those who are actively working and excludes
those looking for work) had returned to its pre-recession peak.
That outcomea recovery in the labor market but with fewer
prime-age men in the work forcewas not unique to the boom years
of the 1990s. In all but one period of recovery since the mid-1950s,
the employment-population ratio for prime-age men failed to reach
the peak it had achieved before the previous recession. But few
observers took note. As long as overall participation in the labor
force was increasingwhich it was from the end of World War II
until 2000, as millions of women entered the work force and the
baby boomers entered their prime working yearsthe decline in
the labor-force participation rate for prime-age men remained at
most a footnote.
But around 2000, womens participation rates also began to fall.
And around 2008, the first cohort of baby boomers began to retire.
When the worst recession since the Great Depression hit at the same
time, all three phenomena converged to form a perfect storm: the
number of Americans either leaving the work force or failing to enter
it exceeded the number who were joining it.
Since then, older Americans (those 55 and up) have seen their
labor-force participation rates rise. This is at least in part because
today, older people tend to work at jobs that are less physically
demanding than the ones that older workers held in the past. Meanwhile, younger people have experienced large drops in labor-force
participation but have also begun to attend college at far higher rates
than in previous decades. Consequently, the share of idle younger
people (those neither in school nor working) has not risen over the
long run, and although many Americans have delayed entering the
work force, many more of them will have better skills when they
eventually do.
SUPPLY OR DEMAND?
Because mens participation in the labor force has been declining for
decades, it makes sense to focus on that segment of the population
when trying to understand what lies behind the overall long-term
trend. All groups of prime-age men have experienced a drop in
participation, but the less educated have suffered disproportionately.
Those with at most a high school education saw their participation
rate fall from 97 percent in 1964 to 83 percent in 2015. In contrast, the
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decrease over the same period for those with a college degree was far
smaller: from 98 percent to 94 percent. (More recently, prime-age
women have seen a similar pattern.)
One possible explanation for these declines is that the supply curve
of labor has shiftedthat is, more men simply do not want to work.
In this vein, some have speculated that as more married women have
entered the labor force, more of their husbands have decided to not
work or have opted to take a substantial amount of time off to pursue
job training or education or to care for children. But the data suggest
that is not what is happening: in fact, less than a fifth of prime-age
men who are not in the labor force have a working spouse, and that
figure has actually decreased during that last 50 years, notwithstanding
the large overall increase in the number of women who work. This
owes, in part, to an increase in what economists call assortative
mating: men and women who are successfully employed are increasingly coupling up with others who are successfully employed, rather
than with partners who do not want to work.
Other proponents of supply-based explanations claim that government programsdisability insurance, in particularhave made staying
out of the labor force more attractive today than in the past. Here
again the data suggest otherwise: from 1967 until 2014, the percentage
of prime-age men receiving disability insurance rose very little, from
one percent to three percent, which accounts for only a small share of
the eight-percentage-point rise in nonparticipation over this period.
So disability insurance explains at most one-quarter of the fall in
participation rates since 1967. But even that is likely an overestimate,
because at least some of the increase in the number of men receiving
disability insurance payments is probably a consequence of men who
are unable to work leaving the labor force rather than a cause of it.
What is more, over the same period, other government assistance
programs became increasingly hard to access. This was particularly
true for people who were out of work, as many state governments
established stricter eligibility standards for unemployment insurance
and the federal government cut spending on traditional cash welfare
payments. Meanwhile, few nonworking, able-bodied adult men without
children are now eligible to receive nutritional assistance. Government
aid thus explains at most only a small fraction of the drop in prime-age
male labor-force participation, casting doubt on another set of supplyside theories.
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Jason Furman
The most significant weakness of labor supply explanations is that

they account for only one piece of data: the drop in the quantity of
labor supplied. By itself, that decline would tend to lead to rising wages
as workers became more scarce. Yet in recent decades, less educated
Americans have actually suffered a reduction in their relative wages
(the amount they earn compared to
what other groups do). From 1975 until
A lack of work doesnt
2014, those with a high school degree
simply mean less income. It or less watched their relative wages
can lead to more profound fall from more than 80 percent of the
amount earned by full-time, full-year
losses as well.
workers with at least a college degree
to less than 60 percent. This fall would
not have happened if a large swath of less educated men had simply
chosen to stop working and to rely on their partners incomes, disability
insurance, or something elsea shift that, all things being equal,
would have led to an increase in their relative wages and not a decrease.
The inability of supply-side explanations to account for both falling
labor-force participation and lower relative wages suggests that
something else is going on: the demand curve for labor has shifted, or
has at least shifted more than the supply curve. In other words, falling
demand for less skilled workers has simultaneously reduced their
employment and lowered their wages.
Economists do not have a clear answer for why the demand for
lower-skilled labor is falling. One possible cause is the long-term
drop in manufacturing jobs that has resulted from technological
advances and the globalization of markets. This decline has eliminated millions of U.S. manufacturing jobs over the past several
decades, leaving many peoplemostly menunable to find new
jobs. Another potential factor is what economists call skill-biased
technological change: advances that benefit workers with certain
skill sets more than others. Such changes have increased the demand
for more skilled workers while hollowing out jobs in the middle to
lower end of the skill distribution.
Another possible reason that the demand for workers has fallen is
the increase in the number of previously incarcerated people in the
populationa byproduct of the massive growth in recent decades in
the number of Americans behind bars. The vast majority of those who
have served time in prison are men, and they tend to face substantially
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lower demand for their labor once they are released. In many states,
the formerly incarcerated are legally barred from a significant number
of jobs by occupational licensing rules or other restrictions on the
hiring of those who have been incarcerated.
FLEXIBLE VS. SUPPORTIVE
A wide range of developed countries have experienced changes in

labor demand similar to those in the United States, with increasing
demand for skilled labor and a reduced share of manufacturing jobs.
But judging from the available data, between around 1980 and around
2010, the United States underwent both a larger decline in prime-age
male participation and a more significant increase in economic inequality
than nearly any other member of the Organization for Economic
Cooperation and Development (OECD). This suggests that government
policies and institutions play a large role in shaping how an economy
responds to such changes.
To understand that role, it is helpful to compare the United States
to France, a country with a very different set of institutions and rules.
Economists describe the United States labor market as being far
more flexible than Frances. In the United States, governments and
institutions such as labor unions place relatively few barriers in the
way of employers who want to change whom they employ and what
they pay. In France, on the other hand, supportive labor-market
policies are intended to prop up both employment levels and wages.
In the United States, 12 percent of employees are covered by collectivebargaining agreements, and it is relatively easy for private-sector firms
to hire and fire workers. In France, by contrast, more than 90 percent
of workers are covered by collective-bargaining agreements, and most
employees enjoy a substantial set of protections, including generous
severance payments and restrictions on dismissal. Furthermore, the
minimum wage for adults in France is around 50 percent higher than
the federal minimum wage in the United States.
Some argue that the American-style labor market makes it easier
for everyone who wants a job to get one, whereas policies such as a
minimum wage introduce inefficiencies and inflexibilities into the
economy. By that logic, the U.S. labor market should easily outperform
the French labor market in terms of employment. And yet, the proportion
of prime-age men in the labor force is five percent lower in the United
States than it is in France. Even taking into account Frances higher
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Jason Furman
unemployment rate, France still has had a higher percentage of primeage men in jobs than the United States has in every year since 2001.
The U.S.-French comparison is not an isolated example. The
United States has the lowest level of labor-market regulation, the
fewest employment protections, and the third-lowest minimum cost
of labor among the OECD countriesattributes that should encourage
better labor-force participation, according to conventional economic
wisdom. But the United States ranks toward the bottom of OECD
countries in terms of the percentage of prime-age men actively
working, and most of the countries that rank lowersuch as Greece,
Italy, Portugal, and Spainare currently suffering from historically
high overall unemployment rates. This poor U.S. performance
reflects a long-term trend: since 1990, the United States has had the
second-largest increase in prime-age male nonparticipation among
OECD members. The gap between theory and reality results partly
from the fact that the U.S. government does far less than other
countries to support workers. The United States spends just 0.1
percent of GDP on so-called active labor-market policies, such as
job-search assistance and job training, much less than the OECD
average of 0.6 percent of GDP and less than every other OECD
country, except Chile and Mexico, spends.
The picture is no better when it comes to the labor-force participation
rates of American women. The proportion of prime-age American
women currently working places the United States at 26 out of the 34
OECD countries. The OECD countries that fare worse than the United
States on this measure either have unusually high overall unemployment
rates (the peripheral European economies, for instance) or tend to
have different cultural norms relating to women taking part in formal
employment (Mexico and Turkey, for example). Moreover, for the past
quarter century, most other OECD countries have seen the participation
of prime-age women increase, whereas in the United States, it has
moved in the opposite direction.
This, too, stems partly from the way that the greater degree of flexibility for employers in the U.S. labor market discourages participation,
particularly for women. Women everywhere bear a disproportionate
burden when it comes to childcare and housework. But the United States
is the only OECD country that does not guarantee paid leave for family
reasons, such as the birth of a child, or for illness. And while the gross
cost of U.S. childcare is close to the OECD average, subsidies for childcare
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in the United States are considerably lower than the OECD average, which
means that the net cost of childcare in the United States is among the
highest of any advanced economy. Moreover, although the United States
generally has low tax rates, the U.S. tax system imposes a relatively high
rate on secondary earners, which creates a disincentive for stay-at-home
parents to enter (or reenter) the work force.
Many other advanced economies have serious problems in their
labor markets, especially when it comes to their youngest and oldest
workers and womens representation in management positions. But
the difference in prime-age labor-force participation between the
United States and OECD countries with less flexible labor markets
suggests that Americans might have something to learn about
creating the conditions for meaningful employment. It also reveals
a flaw in the standard view about the tradeoffs between flexibility
and supportive labor policies. Contrary to the conventional wisdom,
it is necessary to make labor markets more supportive of workers in
order to make those markets more efficient in ways that would
benefit employees and businesses alike. But to do so, the United
States will need to move beyond outdated prescriptions for boosting
employment and participation in the work force.
WORK TO DO
Just as there is no single cause for the decline in the labor-force participation rate, there is no single way to address it. And the problems
and solutions associated with the decline vary from country to country.
But in the United States, Obama has decided to tackle the issue with
a set of proposals that would create meaningful work opportunities
for more Americans.
As the past eight years have made clear, the effect of recessions
on the labor market is becoming only more pronounced. One way to
prevent worse outcomes in the future would be for the federal government to take steps that would increase aggregate demand in the
economy. Investing more in public infrastructure, for example, can
create well-paying employment opportunities for workers without
higher education. To this end, Obama has proposed ambitious new
investments in clean infrastructure that would help build a twentyfirst-century national transportation system.
To protect the unemployed during future economic downturns,
Obama has also proposed establishing an automatic extension of the
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Jason Furman
amount of time that people can claim unemployment insurance

during a recession, providing up to 52 additional weeks of benefits in
states suffering from rapid increases in unemployment (for a total
of up to 78 weeks in most states). The government can also help
deepen the connective tissue in the labor market by reforming
community colleges and training systems to help place people in jobs,
providing recipients of unemployment insurance with more help in
finding new jobs, and broadening the eligibility requirements for
unemployment insurance.
Other reforms to the unemployment insurance system would also
help more people find work. Right now, workers receive unemployment
insurance when they are laid off, but most do not get assistance when
their hours are reduced. That discouremployers from avoiding layoffs
Obama is pushing for bold ages
by temporarily reducing hours across
policies that depart from
the board when demand for their
products or services falls and also
economic orthodoxy and
would significantly improve discourages workers from accepting
lighter schedules. One solution to this
the U.S. labor market.
dilemma would be to arrange the
unemployment insurance system to
promote work sharing by allowing groups of workers whose hours
were temporarily reduced to receive unemployment benefits to make
up for some of their lost earnings. Obamas most recent budget provides
grants and additional incentives to create work-sharing programs
for states that havent already done so. By removing the incentives
for firms to slash jobs rather than merely cut back on hours, these
programs would help prevent job losses during an economic downturn,
as a similar program did in Germany during the most recent recession.
In addition to his plan to promote work sharing, Obama has also
proposed a system of wage insurance that would replace up to 50 percent
of lost wages (up to a limit of $10,000) for two years for unemployed
workers who take new, lower-paying jobs. Such a system would offer
protection against reduced earnings and create an incentive for the
unemployed to get back into employment quickly and to remain in
the work force.
Since the labor-force participation gap between the less educated
and the more educated has grown over the past several decades, strengthening the U.S. educational system and helping more Americans finish
136
high school and college have become more important than ever. The
Obama administration has sought to do this by expanding high-quality
early education, maintaining rigorous standards for students, supporting successful teachers, making college more affordable, and holding
institutions of higher education accountable to their students.
There are also a number of changes to federal tax policy that would
make it easier for people who want to work to do so. For instance,
secondary earners are more responsive to tax rates than primary earners,
and they face higher rates in the United States than in most advanced
countries because the U.S. tax system is largely based on household
income rather than individual income. Obama has proposed creating a
new tax credit that would reduce the effective penalty imposed on
secondary earners. In addition, boosting the Earned Income Tax Credit
for childless workers and noncustodial parentsa move supported not
only by Obama but also by the Republican Speaker of the House, Paul
Ryanwould make work more rewarding for lower-skilled individuals
and thus encourage participation in the work force.
Federal policy can also help ensure that flexibility in the U.S. labor
market benefits employers and employees alike. Improving flexibility in
the labor market doesnt just mean making it easier for the unemployed
to find work; it also involves assisting people who are currently employed.
Some important steps along those lines would be to require the provision
of paid family leave and guaranteed sick days and to provide more
government subsidies for childcare and early learning programsboth
proposals that Obama has supported. In fact, a recent study by the
economists Francine Blau and Lawrence Kahn found that the labor-force
participation rate for American women would be around four percentage
points higher if the United States adopted family-friendly labor-market
policies comparable to those of other OECD countries.
Another obstacle to improving the U.S. labor market is the fact
that around a quarter of jobs now require an occupational license,
up from just five percent in the 1950s. In some states, one must
obtain an occupational license to work as a florist or an interior
decorator, for example, even though it is highly unlikely that licensing
in such professions meaningfully protects consumers. State-level
reforms of occupational licensing would help make it easier for
people who lose one job to move to a new one, possibly in a new
location, and a number of states have begun to take action in this
area. And repealing burdensome local land-use restrictions would
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Jason Furman
increase the supply of housing, making it easier for workers to move

to pursue better opportunities.
A number of far-reaching initiatives in other areas would also have a
profound positive effect on the U.S. work force. Reforms to the criminal
justice system would mitigate the negative effects of mass incarceration
on labor-force participation. The most important steps supported by
Obama include reducing mandatory minimum sentences (especially for
nonviolent offenders), improving inmates prospects for reentry into
the labor force by providing them with better educational and training
opportunities while in prison, and placing fewer restraints on hiring
ex-offenders. Comprehensive immigration reform would also help.
Although it would not directly boost the labor-force participation rate
of native-born workers, immigration reform would raise the overall rate
by bringing in new workers of prime working age, offsetting some of the
larger economic challenges associated with a shrinking work force.
Finally, despite the claims of some economists, growing inequality
is neither a necessary cause nor an inevitable consequence of better
economic performance, and some evidence suggests that steps to
reduce inequality (or to at least slow its growth) would also improve
labor-force participation. To that end, the federal government must
raise the minimum wage and help ensure that workers have a strong
voice in the labor market by supporting collective-bargaining rights.
These policies would help level the playing field for employees,
increasing the incentives to work.
The long-term decline in labor-force participation is a serious
challenge, one that the United States must tackle as it moves farther
away from the shadow of the Great Recession. The decline calls into
question economic orthodoxy and provides an opening for less traditional
policies that would benefit American firms, families, and workers alike
by stemming the drop in the size of the U.S. work force. Such policies
are not, in the long run, zero-sum: by strengthening incentives to
participate in the labor market, they would increase the efficiency
and performance of the U.S. economy, benefiting everyone.
The next half century will not offer the favorable demographics
and mass entry of women into the labor force that the last half century
supplied. So to promote a stronger, larger U.S. work force, policymakers
must take action and recognize that adherence to simplistic traditional
policy prescriptions would leave the United States facing a weaker
economic outlook for decades to come.
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Human Work in the

Robotic Future
Policy for the Age of Automation
he promises of science fiction are quickly becoming workaday

realities. Cars and trucks are starting to drive themselves in
normal traffic. Machines have begun to understand our
speech, figure out what we want, and satisfy our requests. They have
learned to write clean prose, generate novel scientific hypotheses (that
are supported by later research), compose evocative music, and beat
us, quite literally, at our own games: chess, poker, and even go.
This technological surge is just getting started, and theres much
more to come. For one thing, the fundamental building blocks that
launched it will continue to improve rapidly. The costs of processing,
memory, bandwidth, sensors, and storage continue to fall exponentially.
Cloud computing will make all these resources available on demand
across the world. Digital data will become only more pervasive, letting
us run experiments, test theories, and learn at an ever-greater scale.
And the billions of humans around the world are growing increasingly
connected; theyre not only tapping into the worlds knowledge (much
of which is available for free) but also expanding and remixing it. This
means that the global population of innovators, entrepreneurs, and
geeks is growing quickly and, with it, the potential for breakthroughs.
Most important, humanity has recently become much better at
building machines that can figure things out on their own. By studying
ANDREW M C AFEE is Principal Research Scientist at the MIT Sloan School of Management and Co-Founder of MITs Initiative on the Digital Economy.
ERIK BRYNJOLFSSON is Schussel Family Professor of Management Science at the MIT
Sloan School of Management, Co-Founder of MITs Initiative on the Digital Economy, and
Chair of the MIT Sloan Management Review.
They are the authors of The Second Machine Age: Work, Progress, and Prosperity in a Time
of Brilliant Technologies.
July/August 2016
139
lots of examples, identifying relevant patterns, and applying them to

new examples, computers have been able to achieve human and superhuman levels of performance in a range of tasks: recognizing street
signs, parsing human speech, identifying credit fraud, modeling how
materials will behave under different conditions, and more.
Building machines that can learn on their own is critical, because
when it comes to accomplishing many tasks, we humans know more
than we can tell, as the scientist and philosopher Michael Polanyi put
it. Historically, this served as a hard barrier to digitizing much work:
after all, if no human could explain all the steps followed when completing a task, then no programmer could embed those rules in software. Recent advances mean that Polanyis paradox is not the barrier
it once was; machines can learn even when humans cant teach them.
As a result, jobs that involve matching patterns, in particular, from
customer service to medical diagnosis, will increasingly be performed
by machines. Because U.S. companies are both the worlds most
prolific producers and the worlds most enthusiastic consumers of
technology, many of the effects of the digital revolution will likely be
seen first in the United States. Low-wage jobs are especially at risk:
in its 2016 report to the president, the U.S. Council of Economic
Advisers estimated that 83 percent of jobs paying less than $20 per
hour could be automated.
Such a radical reshaping of work will call for new policies to protect
the vulnerable while reaping the gains of the new age. The choices
made now will prove particularly consequential. The wrong interventions will hurt the economic prospects of millions of people around
the world and leave them losing a race against the machines, while the
right ones will give them the best chance of keeping up as technology
speeds forward.
How to tell the difference? Two basic principles should guide
decisions: allow flexibility and experimentation instead of imposing
constraints, and directly encourage work instead of planning for its
obsolescence.
A MORE FLEXIBLE ECONOMY
In times of rapid change, when the world is even less predictable than
usual, people and organizations need to be given greater freedom to
experiment and innovate. In other words, when one aspect of the
capitalist dynamic of creative destruction is speeding upin this case,
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the substitution of digital technologies for cognitive workthe right

response is to encourage the other elements of the system to also
move faster. Everything from individual tasks to entire industries is
being disrupted, so its foolish to try to lock in place select elements
of the existing order. Yet often, the temptation to try to preserve the
status quo has proved irresistible.
Even though the times call for flexibility, policymakers seem to be
moving in the opposite direction. In recent decades in the United
States, business dynamism and labor-market fluidity have in fact
decreased. Entrepreneurship, job growth within young companies,
worker moves from one job or city to anotherthese and other
similar phenomena have all shown steady declines that predate the
Great Recession.
The decay of business dynamism appears to be the result of what
the economist John Haltiwanger has characterized as death by a
thousand cuts. Many of these cuts are restrictions placed on some
kinds of work. According to the economist Morris Kleiner, whereas
only around five percent of American workers in the 1950s were
required to have a state license to do their jobs, by 2008, the figure
had climbed to almost 30 percent. Some of the requirements are
plainly absurd: in Tennessee, a hair shampooer must complete 70 days
of training and two exams, whereas the average emergency medical
technician needs just 33 days of training. As Jason Furman, chair of
the Council of Economic Advisers, said in 2015, Licensing may be
contributing to a range of challenges facing labor markets, including
reduced labor force participation, higher long-term unemployment,
and higher part-time employment.
Some states are already taking action. In early 2016, legislators
in North Carolina proposed eliminating 15 licensing boards, including those for irrigation contractors and pastoral counselors.
Such efforts should be expanded. It is far from clear how large the
gains from easing excessive requirements would be, but its well
worth finding out.
LEVELING THE PLAYING FIELD
Some of the barriers facing young, fast-growing, technology-centric

companies today illustrate another kind of inflexibility: entrenched
interests working to preserve their positions. Tesla sells its popular
electric cars at fixed prices with no haggling, but laws preventing
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automakers from acting as retailers bar the company from doing so at

its own facilities in six states, which together account for 18 percent of
the U.S. new-car market. The ride-hailing company Uber has had to
fight taxi regulators in city after city,
though customers clearly value its
Even though the times call even
convenience and safety and drivers
for flexibility, policymakers value its income and flexibility. These
battles provide strong evidence of regseem to be moving in the
ulatory capture, a phenomenon in
opposite direction.
which agencies act on behalf of special
interests instead of the public. Startups should certainly pay their fair share of taxes and operate safely,
but they shouldnt be kept out of markets by incumbents machinations.
In the regulatory wars between start-ups and incumbents, defenders
of the status quo often claim to be fighting to maintain a level playing
field. But todays playing fields are far from level; theyre often tilted
toward established companies. More fundamentally, many decades-old
regulations designed to protect consumers from so-called information
asymmetries no longer make sense in the information age. When it
comes to many goods and services, consumers now know more than ever,
from the exact route a Lyft driver took to the previous guests ratings
of an Airbnb host.
The ability to rate Uber and Lyft drivers after every trip goes a
long way toward explaining why they often take such care to keep
their cars clean, and it provides an efficient way to weed out drivers
who are less customer-oriented. Even the most diligent taxi cab
regulator would find it impossible to conduct meaningful observations
that frequently. As Eric Spiegelman, the president of the Los Angeles
Taxicab Commission, has admitted, Ubers method is better for
passengers. In more and more markets, as digital technologies make
relevant information widely available, the need for centralized regulation should go down, not up.
Similar breakthroughs in transparency have transformed other
parts of the economy, from ski resorts that cannot exaggerate their
snowfall to airlines that cannot hide their record of on-time arrivals.
There is little need for lemon laws, after all, when everyone knows
which cars are the lemons. As technology races ahead, there will be
substantial opportunities to relevel the playing fields on which businesses compete. The innovation surge that is under way now will
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highlight the stark differences between actual capitalism, where competition among companies yields great gains for people, and crony
capitalism, in which incumbents and their allies in government strive
to avoid disruptions. Its clear which is the better type, and so policy
should promote it.
Flexibility will also require better data, since experimenting works
only if one knows whether a given effort is having the desired effect.
It is unfortunate, then, that the U.S. Congress cut the budget for the
Bureau of Labor Statistics by 11 percent in real terms between 2010
and 2015. Businesses, policymakers, and academics all make heavy
use of the evidence collected by the federal government about the
U.S. work force.
A much more encouraging development is President Barack Obamas
Open Government Initiative. In 2013, Obama signed an executive
order making open and machine-readable data the new default for
government information. At all levels of the government, the United
States needs more such efforts, which would prove helpful to all sorts
of decision-makers. As more and more digital data become available,
there will be even more opportunities for sharing information to
improve policy, and the government should play a key role in this
process. As Larry Summers, a former secretary of the treasury,
recently put it, Data is the ultimate public good.
REDEFINING EMPLOYMENT
The relationship between employers and the people who work for
them is another area where the United States faces choices between
rigidity and flexibility. Today, companies must designate their workers
as either employees or contractors. This classification, which is overseen by the Internal Revenue Service, affects whether workers receive
overtime pay, are eligible for compensation for on-the-job injuries,
and have the right to organize into unions.
The last decade has seen a substantial rise in various forms of contracting. According to the economists Lawrence Katz and Alan
Krueger, the percentage of American workers in alternative arrangements, including temporary staffing, contracting, and on-call work,
increased from ten percent in 2005 to 16 percent in 2015. This trend
should accelerate with the continued growth of the on-demand
economy, epitomized by Uber and Lyft and the freelancer marketplaces
TaskRabbit and Upwork. Although only about 0.4 percent of the U.S.
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work force (about 600,000

people) currently earns a
primary living through
these digital intermediaries, this figure will likely
grow rapidly.
These significant shifts
in the nature of employment have prompted calls
for rethinking the way
workers are classified.
Krueger and Seth Harris,
a former deputy secretary
of labor, have proposed
the creation of a new independent worker designation. These workers
would not be eligible for
overtime pay or unemployment insurance. But they would enjoy the protection of federal
antidiscrimination statutes and have the right to organize, and their
employers, whether online or offline, would withhold taxes and make
payroll tax contributions. Proposals such as this deserve serious consideration, including of how to implement them without making decisions about worker classification more difficult. In fact, a more flexible
approach might be to eliminate as many arbitrary distinctions between
employees and independent workers as possible by making benefits
portable rather than tightly linked to any particular employer.
It is tempting to protect the kinds of full-time salaried jobs that gave
rise to the United States large and prosperous middle class. But policymakers should keep two things in mind. First, not everyone wants a classic
industrial-era job. Second, it simply isnt possible to regulate the postwar
middle class back into existence. Attempts to do sofor example, by making it more difficult for companies to hire anyone except full-time salaried
employeeswill only result in a protected community of jobholders that
shrinks over time and an ever-growing group excluded from participation.
More broadly, as technology transforms the economy, policymakers
will face all manner of new and unpredicted choices. In making them, they
should return to the basics: remove rigidities, provide flexibility, and
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boost resilience. Should

schools have greater
freedom to reward
their best-performing
teachers and remove
their worst? Yes, especially in light of research showing how
much teacher quality
influences lifetime student earnings. Should
entry-level workers
have to sign restrictive
noncompete
agreements? No. Should
the federal government experiment with
extending student loan
guarantees to nontraditional job-preparation programs, such as nanodegree
courses and coding boot camps, even if theyre offered
by unaccredited institutions? Yes.
Of course, flexibility and dynamism do not trump all
other goals. Workplace health and safety are essential, as
are clear property rights and legal protections that make
it possible to assign responsibility for harms. The key is to distinguish
legitimate protections from those that are designed primarily to protect incumbents and impede change.
MONEY FOR NOTHING?
The second principle, that policy should directly encourage labor,

has a straightforward justification: works value both for individuals and for communities goes well beyond its financial role. As
Voltaire put it, Work saves us from three great evils: boredom,
vice, and need. But isnt work itself becoming pass, thanks to
automation? A 2013 study by Carl Benedikt Frey and Michael
Osborne of Oxford University, which predicted the automation of
nearly half of U.S. jobs, would certainly seem to call for radical
policy changes.
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The most widely discussed of these nowadays is the provision of a

universal basic income: a cash award given by the government to all
citizens, regardless of need. A universal basic income has attracted
broad support in the pastfrom Martin Luther King, Jr., to President
Richard Nixonand its popularity is once more on the rise. The
governments of Finland and Switzerland, as well as several Dutch
cities, have made moves toward rolling out a universal basic income.
In the United States, the idea boasts a diverse group of champions,
including the libertarian social scientist Charles Murray, the technology
entrepreneur Sam Altman, and the former service employees union
president Andy Stern.
A universal basic income has obvious appeal in a job-light future
where a great many people cant earn a living from their labor, but it
would be prohibitively expensive to provide even a small universal
income to a population as large as that of the United States. In 2014,
there were about 134 million households in the country, averaging
2.6 people each. The federal poverty level that year for a household of
that size was approximately $18,000 per year. A universal basic income
of that amount, then, would cost about $2.4 trillion per year, or more
than 75 percent of all federal tax receipts in 2014.
At current levels of national income, this kind of universal basic
income is unworkable. As a result, most realistic proposals for one
today are far more modest and often not truly universal, since they
would extend the cash award only to low-income groups. It is hard to
see how less ambitious versions of the policy would mitigate the effects of large-scale, technology-induced joblessness.
BACK TO WORK
Fortunately, there is no need for policies for a jobless economy yet, for
the simple reason that the era of mass technological unemployment is
not imminent. The Frey and Osborne study and the analysis in the
Council of Economic Advisers report offered no time horizon for
their job-loss forecasts. And as the authors of the underlying research
acknowledge, its methodology relies on subjective judgments about
jobs susceptibility to automation and makes no attempt to estimate
any technology-enabled job gains. Nor is there any sign that the
United States is currently approaching peak jobs. From the end
of the recession in July 2009 to March 2016, the country saw net
gains of, on average, more than 160,000 jobs per month. Over
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that time, the unemployment rate fell from a high of ten percent
to five percent.
Despite this strong and consistent job growth, however, there are
clear signs that this is an atypical recovery and that significant weaknesses remain in the labor market. The
headline unemployment rate is so low
It simply isnt possible to
in part because it is calculated based on
the number of people who are actually regulate the postwar middle
participating in the labor force (that class back into existence.
is, working or looking for work), and
labor-force participation fell sharply during the recession and has
been very slow to recover afterward. Since 2011, less than 82 percent
of working-age Americans have participated in the labor force, a level
last seen more than 30 years ago, when women had not yet begun
working outside the home in large numbers. Unsurprisingly, wage
growth has also remained anemic since the end of the recession.
Declining work-force participation is troubling not only because
work provides income but also because it gives people meaning. The
sociologist William Julius Wilson has argued that the consequences
of high neighborhood joblessness are more devastating than those of
high neighborhood poverty, and a great deal of research supports his
view. As employment prospects have dimmed in recent years for
the United States least educated workers, Robert Putnam, Murray,
and other social scientists have documented troubling results: declines
in social cohesion and civic participation and increases in divorce
rates, absentee parenting, drug use, and crime. In 2015, the economists Anne Case and Angus Deaton published the alarming finding
that although death rates in the United States have fallen steadily
for most demographic groups, they have risen for middle-aged whites,
and especially for those with less than a high school education (a group
facing particularly sharp employment challenges). The increased
mortality among this group was almost entirely due to three factors:
suicide, cirrhosis and other chronic liver diseases, and acute alcohol
and drug poisoning.
Of course, these social woes stem from many sources. But unemployment and underemployment no doubt contribute, and troubled
communities would certainly benefit from more opportunities and
incentives for work. As President Franklin Roosevelt once said,
Providing useful work is superior to any and every kind of dole.
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EARNING IT
Because work provides benefits to individuals, households, and communities that go far beyond the money earned, policy should encourage employment. Unlike a universal basic income, wage subsidies do
just that. In the United States, the Earned Income Tax Credit, which
is administered through annual tax returns, offers a maximum yearly
benefit of $6,242 for a family with three or more children. Whereas a
universal basic income would be given unconditionally, the EITC is
available only to people with wage income and therefore provides a
direct incentive to work.
An experiment from the late 1960s and early 1970s offered clear
evidence of the importance of such an incentive. Thousands of
households in Denver and Seattle received differing combinations of
a relatively generous basic income and a wage subsidy. The results
were clear and consistent: in both cities, once the assistance started,
both men and women worked fewer hours, and their marriages were
more likely to dissolve. These declines were significantly associated
with the basic income, but not with the wage subsidy, suggesting that
it was the arrival of income without work that made things worse.
Wage subsidies, by contrast, encourage people to work more hours
(and increase their tax credit), as the economists Raj Chetty, John
Friedman, and Emmanuel Saez have found of the EITC.
But for now, efforts to raise the minimum wage enjoy more popular
momentum. At a time when the federal minimum wage stands at
$7.25 per hour and no state has one higher than $10 per hour, many
states and localities are facing loud calls to raise the minimum wage
all the way to $15. Some of these efforts have been successful; New
York and California are slated to raise their minimum wages to $15
in 2018 and 2022, respectively.
Raising the rewards for work is a laudable goal, but significantly
higher minimum wages are not the best way to accomplish it. When
labor becomes more expensive, companies tend to use less of it, all
else being equal. It is true that across the large amount of research on
minimum-wage hikes, the average finding is that they at most reduce
total employment only slightly. But it is also true that estimates of the
effects vary widely and that most of this research has examined only
modest increases.
There is reason to believe that minimum-wage increases of 50 percent or more, even if phased in gradually, would worsen job prospects
148
for the least affluent and least skilled workersan especially undesirable outcome at a time of low work-force participation. As
Arindrajit Dube, an economist who has studied previous minimumwage hikes, has put it, If youre risk-averse, this would not be the
scale at which to try things. The safest combination of policies,
therefore, is a moderate minimum wage together with a substantially
expanded EITC or similar wage subsidy. Just as individuals should be
encouraged to seek work, employers should be encouraged to provide
it, and much higher minimum wages have the opposite effect.
PEOPLE POWER
Ever-smarter machines will prove transformative, just as electrification,

internal combustion, and steam power were in earlier eras. New technology will create opportunities for vastly greater productivity and
wealth but will also upend the labor market.
In times of disruption, it is impossible to predict exactly how the
work force will be affected. The best strategy is not to try to slow the
technology but to strive for flexibility, so that people, organizations,
and institutions can learn and grow their way into a healthy future.
Furthermore, given the importance of work beyond the income it
generates, policy should encourage work rather than assuming we live
in a world without the need for it.
Its easy to be pessimistic about whether any of the proposed
policies will be enacted. Polarization in Congress is at a postwar
high, the 2016 presidential candidates have largely dodged fundamental questions about the challenges facing the economy, and the
forces of inertia, as ever, remain strong. Policymaking will no doubt
lag behind the technology.
But there are a few hopeful signs. One is that the EITC enjoys bipartisan support, with both Obama and Paul Ryan, the Republican Speaker
of the House, in favor of making it more generous and extending it
to younger workers. Both sides of the aisle appear to support policies
that directly encourage work, perhaps because it comports well with
the American preference for industriousness that has struck observers
from Alexis de Tocqueville onward. Its worth undertaking more experimentation in this area, in order to better understand the tradeoffs and
incentive effects of variations of these policies.
The other principlethat policy should promote flexibilityis also
gaining traction, albeit in a more piecemeal way. Some cities and states
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are working to ease job licensing restrictions and other rigidities

and are growing more receptive to the companies and practices of
the on-demand economy. Because regulations and policies exist at
multiple independent levelsfederal, state, and localadvocates
of flexibility should probably not expect that fast and systematic
action will bring it about. They can, however, continue to highlight
its importance and conduct research to better understand why
business dynamism is declining.
The rise of intelligent computers can and should be good news for
the economy. It will bring great material prosperity, better health, and
other benefits that cant be foreseen. But a broadly shared prosperity
is not automatic or inevitable. In the new age of machines, it will take
humans to achieve that.
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How Washington Can Reverse the Tide
Larry Diamond
n the decade following the Cold War, democracy flourished around

the world as never before. In recent years, however, much of this
progress has steadily eroded. Between 2000 and 2015, democracy
broke down in 27 countries, among them Kenya, Russia, Thailand,
and Turkey. Around the same time, several other global swing states
countries that, thanks to their large populations and economies, could
have an outsize impact on the future of global democracyalso took
a turn for the worse. In nearly half of them, political liberties, as
measured by the U.S. nonprofit Freedom House, contracted.
Meanwhile, many existing authoritarian regimes have become even
less open, transparent, and responsive to their citizens. They are
silencing online dissent by censoring, regulating, and arresting those
they perceive as threats. Many of them are attempting to control the
Internet by passing laws, for example, that require foreign companies
to store citizens data within the home countrys borders. Offline,
states are also constraining civil society by restricting the ability of
organizations to operate, communicate, and fundraise. Since 2012,
governments across the globe have proposed or enacted more than
90 laws restricting freedom of association or assembly.
Adding to the problem, democracy itself seems to have lost its
appeal. Many emerging democracies have failed to meet their
citizens hopes for freedom, security, and economic growth, just as
the worlds established democracies, including the United States,
have grown increasingly dysfunctional. In China, meanwhile, decades
of economic growth have proved that a state need not liberalize to
generate prosperity.
LARRY DIAMOND is a Senior Fellow at the Hoover Institution and at the Freeman
Spogli Institute for International Studies at Stanford University. Follow him on
Twitter @LarryDiamond.
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Larry Diamond
Not all the trends are bad. Optimists can point to Nigeria, which
in May 2015 experienced the first truly democratic transfer of
powerfrom a defeated ruling party to the oppositionin its history, or to Sri Lanka, which returned to electoral democracy in
January 2015 after five years of electoral autocracy. The first Arab
democracy in decades has emerged in Tunisia, and in Myanmar
(also called Burma), a democratically elected government now
shares significant power with the military. The authoritarian model
of capitalism has also lost some of its shine, as Chinas growth has
slowed markedly and the plunge in oil prices has weakened Russia
and other petrostates.
Proponents of democracy should act energetically to capitalize on
these and other opportunities. The right kind of support from the
United States and its allies could unleash a new wave of freedom across
the globe, particularly in Asias swing states. Without that support,
however, autocracies will continue to proliferate, leading to more
instability and less freedom.
TURNING INWARD
One of the biggest challenges facing democracy today is that its

biggest championthe United Stateshas lost interest in promoting
it. In a 2013 Pew survey, 80 percent of Americans polled agreed with
the idea that their country should not think so much in international
terms and instead concentrate more on [its] national problems. Just
18 percent expressed the belief that democracy promotion should be a
top foreign policy priority. It should thus come as no surprise that
none of the current presidential candidates has made democracy
promotion a cornerstone of his or her campaign.
Washington has continued to support some nongovernmental
efforts. Congress increased its appropriation for the National
Endowment for Democracy, a nonprofit that funds pro-democracy
groups abroad, from $115 million in 2009 to $170 million in 2016. For
the most part, however, as public support for democracy promotion
has declined, funding for it has stagnated. During this same period,
U.S. government spending on democracy, human rights, and governance programs (mainly through the U.S. Agency for International
Development, or USAID) fell by nearly $400 million. Even excluding
the decline in funding for Afghanistan and Iraq, funding for such
programs in other countries stayed flat.
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As the United States has lagged behind, few other countries have
stepped in. The most ambitious intergovernmental attempt to promote
democracythe Community of Democracies, a coalition established
in 2000lacks the resources and visibility to have much impact.
Regional organizations are not doing much better. The EU, for example,
has largely stood by as Hungarian Prime Minister Viktor Orban has
flouted democratic norms. And the union was so desperate to secure
Turkeys help in stemming the flow of Syrian refugees that it agreed to
revive membership talks with Ankara, even as Turkish President Recep
Tayyip Erdogan has accelerated his efforts to suppress dissent.
Although some European countries, such as Sweden and the United
Kingdom, have continued to support significant bilateral programs to
promote democracy and improve governance, the budget of the
European Endowment for Democracy, established in 2013, reached
just over $11 million last year. The United Kingdoms Westminster
Foundation for Democracy currently has a public budget of just $5 million. Canadas International Centre for Human Rights and Democratic
Development shut down in 2012. And developing democracies such
as Brazil, India, and Indonesia have hesitated to contribute much,
focusing instead on their own many problems.
Authoritarian leaders have capitalized on this vacuum by exporting
their illiberal values and repressive technologies. Iran has been using
its financial, political, and military influence to shape or destabilize
governments in Iraq, Lebanon, Syria, and Yemen. Russia has used
violence and intimidation and has funneled money to support separatist
movements and to prop up pro-Russian, antireform political forces
in Georgia and Ukraine. Moreover, Russia has built what the Internet
freedom organization Access Now has termed a commonwealth of
surveillance states, exporting sophisticated electronic surveillance
technologies throughout Central Asia. China, too, has reportedly
supplied Ethiopia, Iran, and several Central Asian dictatorships
Tajikistan, Turkmenistan, and Uzbekistanwith Internet and telecommunications surveillance technology to help them repress and
spy on their citizens.
THE BEST FORM OF GOVERNMENT
Although democracy promotion may have fallen out of favor with the
U.S. public, such efforts very much remain in the national interest.
Democracies are less violent toward their citizens and more protective
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Larry Diamond
of human rights. They do not go to war with one another. They are
more likely to develop market economies, and those economies are
more likely to be stable and prosperous. Their citizens enjoy higher
life expectancies and lower levels of infant and maternal mortality than
people living under other forms of government. Democracies also
make good allies. As Michael McFaul, the former U.S. ambassador to
Russia, has written, Not every democracy in the world was or is a
close ally of the United States, but no democracy in the world has been
or is an American enemy. And all of Americas most enduring allies
have been and remain democracies.
Authoritarian regimes, by contrast, are inherently unstable, since
they face a central dilemma. If an autocracy is successfulif it produces
a wealthy and educated populationthat population will construct a
civil society that will sooner or later demand political change. But if
an autocracy is unsuccessfulif it fails to generate economic growth
and raise living standardsit is liable to collapse.
The United States still has the tools to promote democracy, even if
it lacks the will. As Thomas Carothers, a vice president at the Carnegie
Endowment for International Peace, has shown, over the past quarter
century, U.S. electoral assistance has evolved from superficial, in-andout jobs to deeper partnerships with domestic organizations. Support
for civil society has spread beyond simply aiding elites in national
capitals. Efforts to promote the rule of law have expanded beyond the
short-term technical training of judges and lawyers to focus on broader
issues of accountability and human rights.
These efforts appear to have paid off. A 2006 study of the effects
of U.S. foreign assistance on democracy found that $10 million of
additional USAID spending produced a roughly fivefold increase in
the amount of democratic change a country could be expected to
achieve based on the Freedom House scale.
LET FREEDOM RING
But the United States can and should do more. The next president
should make democracy promotion a pillar of his or her foreign policy.
Washington could do so peacefully, multilaterally, and without significant new spending.
Pursuing such a policy requires, first of all, taking care to avoid
legitimizing authoritarian rule. President Barack Obama did just the
opposite during a July 2015 visit to Ethiopia, when he twice called its
154
A heavy hand: Turkish President Recep Tayyip Erdogan in France, October 2015
VINCENT KESSLER / REUTERS
government democratically elected, even though it had held sham

elections earlier that same year. When he visited Kenya on the same
trip, Obama expressed the hope that its corrupt and semiauthoritarian
regime would keep continuing down the path of a strong, more inclusive,
more accountable and transparent democracy. Regimes pounce on
such language, using implicit U.S. endorsements to stifle free speech
and activism at home. In 1981, George H. W. Bush, then vice president,
visited Manila and said to the countrys dictator, Ferdinand Marcos,
We love your adherence to democratic principle. Within the next
few years, Marcos abuses intensified, and his principal rival in the
democratic opposition, Benigno Aquino, Jr., was assassinated.
Washington should also seize opportunities to reaffirm the countrys
commitment to democracy abroad. In 2015, the United States assumed
leadership of the Community of Democracies, which will hold its
next biennial meeting in Washington in 2017, a few months after the
next president is inaugurated. He or she should speak at the meeting
to emphasize the organizations importance and to endorse the values
for which it stands.
The next president should also increase financial support to fragile
democracies. States undergoing political transitionssuch as Myanmar,
Tunisia, and Ukraineare particularly vulnerable to outside influence.
So U.S. support can have an outsize impact in such places. Congress
July/August 2016
155
Larry Diamond
has already increased assistance to Tunisia, from $61 million in 2015

to $142 million this year, and to Ukraine, from $88 million in 2014 to
$659 million today. It could and should do still more for these countries, and for other emerging and fragile democracies both small (Senegal, for example) and large (such as Indonesia). But part of the
bargain for increased economic aid has to be a serious commitment by
the leaders of those countries to fight corruption and improve the
quality of governance.
Countries bordered by democracies tend to evolve in a democratic
direction, while those bordered by authoritarian regimes tend toward
autocracy. Washington should thus develop a comprehensive strategy
for targeting states where democratic progress could affect the entire
region. Populous countries tend to be more influential, so the next
president should find ways to nudge states such as Bangladesh, Indonesia,
Myanmar, Nigeria, Pakistan, the Philippines, and South Africa toward
more effective, accountable, and democratic governance. At the same
time, he or she should not neglect smaller democracies such as Georgia,
Senegal, and Tunisia. In the post-Soviet sphere, in West Africa, and
in the Arab world, civic and political actors are closely watching these
three high-profile experiments. In each case, success could generate
significant spillover effects. The United States should also focus on
places on the cusp of a breakthrough. Venezuela, for instance, has
been poised for a democratic transition since late 2015, when the
opposition trounced the governing party in legislative elections,
undermining roughly two decades of socialist rule. And Vietnam
represents an intriguing opportunity, due to its emerging civil society,
membership in the Trans-Pacific Partnership, and clear desire to draw
closer to the United States in order to counter the threat from China.
Any policy to promote democracy must include bolder, smarter
efforts to fight corruption, which sustains most authoritarian regimes.
In the past decade, Washington has made progress in identifying,
tracking, and seizing ill-gotten wealtha crucial step in the wars
against terrorism and drug trafficking that can also advance democracy
and human rights. But the United States must do more to identify the
international assets of venal dictators and their cronies, prosecute
them for money laundering, and return their vast fortunes to their
neglected citizens. The next administration should direct USAID to
prioritize programs that help countries build professional bureaucracies
and autonomous agencies capable of auditing government accounts
156
and prosecuting corruption. And it should aid civil society groups

and the media in their efforts to track stolen funds and hold public
servants accountable.
As part of a push to discourage corruption, the next president
should accelerate the use of legal strategies and tools to seize the U.S.based assets of venal dictators. Since the United States launched the
Kleptocracy Asset Recovery Initiative
in 2010, lawyers and investigators from
Between 2000 and 2015,
the Justice Department, the Department
of Homeland Security, and the FBI democracy broke down in
have brought 25 legal cases against 20 27 countries.
foreign officials, seeking to recover
$1.5 billion in ill-gotten gains, including
from the estate of the late Nigerian dictator Sani Abacha and from
Gulnara Karimova, daughter of the Uzbek president. Washington has
also been stepping up efforts to halt the flow of illicit money into U.S.
banks. The next president should dramatically increase the resources
and political capital for such efforts, both nationally and globally, to
ensure that kleptocrats can find no safe haven.
He or she should also encourage U.S. diplomats to make support for
democracy a major priority in their work on the ground. These envoys
can use their diplomatic immunity to shield activists from arrest or to
make it more difficult for a regime to target them, as has been the case
with U.S. and European diplomatic support for Las Damas de Blanco
(the Ladies in White), the opposition movement that wives of jailed
dissidents and other women founded in Cuba. In extreme circumstances,
they can and should shelter dissidents in their embassies and consulates,
as the U.S. embassy did for the Chinese scientist and dissident Fang
Lizhi after the 1989 crackdown on the Tiananmen Square protesters.
Diplomats also have unparalleled access to local leaders, which gives
them a unique opportunity to nudge autocrats toward reform. In a
country transitioning to democracy, such as South Africa in the late
1980s and early 1990s, or Myanmar today, such engagement can help
foster and sustain the resolve for democratic change. Where an
authoritarian regime is powerful, confident, and sitting tight, as in
China today, it may seem as though such efforts are hopeless. But most
authoritarian regimes have moderate and pragmatic elements who may
see the need for political opening. China is no different. The marginal
moderates of today could well become the rulers of tomorrow.
July/August 2016
157
Larry Diamond
Meanwhile, the next administration ought to support Internet

freedom and digital rightsan especially important effort in light of
what the Edward Snowden leaks revealing U.S. government surveillance of Internet and phone communications did to U.S. credibility.
In this vein, the government should start by refining its economic
sanctions. In 2014, Washington exempted the export of software
for personal communications over the Internet, such as instant
messaging, chat and email, social networking, sharing of photos and
movies, web browsing, and blogging from its sanctions against Iran.
Such exemptions, as well as the free distribution of software to
circumvent Internet censorship and allow dissidents to communicate
securely, should become a standard part of any U.S. sanctions effort,
including that against North Korea. Authoritarian regimes need to
filter information and control communications to sustain their rule,
and undermining that control is one of the best ways the United States
can foster democratic change.
The next president can also use trade agreements to advance
democracy. Academic studies confirm that when free-trade agreements
are conditional on governments taking specific measures to protect
human rights, meaningful improvements follow. The White House
has reported that the mere process of negotiating the Trans-Pacific
Partnership induced Brunei to sign and Vietnam to ratify the UN
Convention Against Torture, while also encouraging other human
rights improvements in these two countries and in Malaysia. Embedding
strong guarantees for human rights (including labor rights) into future
trade agreements offers a dual benefit: it can nurture democratic
reform in partner countries and help undermine the charge that U.S.
trade pacts establish an unfair playing field for American workers and
companies. Needless to say, the success of such provisions will depend
on whether Washington is willing to bring legal action against member
states that violate them.
YES WE CAN
Above all, any push for democracy abroad should begin at home. The
sad fact is that American democracy no longer inspires admiration or
emulation. The U.S. presidential election has revealed deep currents
of alienation and anger among the publiccurrents Washington
appears unable to calm. The gerrymandering of congressional districts,
the flood of so-called dark money into election campaigns, and the
158
ever-growing power of special-interest lobbies have polarized politics

to an unprecedented degree, resulting in the passing of fewer bills, a
breakdown in bipartisan foreign-policy making, and regular government shutdowns.
These political failings have given ammunition to democracys
enemies. Russian President Vladimir Putin, for instance, has claimed
that there is no true democracy in the United States, and Mahmoud
Ahmadinejad, the former president of Iran, has criticized U.S. elections
as a battleground for capitalists.
The next administration could take a number of steps to counter
such charges and restore peoples confidence in American democracy.
Working with Congress, it should reform campaign finance laws
and require the rapid and full disclosure of all campaign contributions, even to so-called independent committees. It should also
encourage state governments to invigorate political competition
for example, by ending gerrymandering, introducing ranked-choice
voting for Congress and state offices, and removing sore-loser laws,
which prevent defeated primary candidates from running as independents in the general election.
Together, these steps could improve democracy in the United
States and abroad at little to no financial cost. They could help restore
the United States leadership role in the world. And they could tip the
world out of its persistent democratic recession and into a new period
of progress.
July/August 2016
159
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The Innovative
Finance Revolution
Private Capital for the Public Good
ssessments of how governments and international organizations have dealt with global challenges often feature a familiar
refrain: when it comes to funding, there was too little, too late.
The costs of economic, social, and environmental problems compound
over time, whether its an Ebola outbreak that escalates to an epidemic,
a flood of refugees that tests the strength of the EU, or the rise of
social inequalities that reinforce poverty. And yet governments and
aid groups rarely prove able to act before such costs explode: indeed,
according to some estimates, they spend 40 times as much money
responding to crises as they do trying to prevent them.
One reason for this is that complex international problems tend to
be dealt with almost exclusively by governments and nonprofit organizations, with the private sector typically relegated to a secondary
roleand with the financial sector playing a particularly limited part.
Stymied by budgetary constraints and political gridlock, the traditional,
primarily public-financed system often breaks down. Government
funds fall short of what was promised, they arrive slowly, and the
problem festers.
In recent years, however, a new model has emerged, as collaborations
among the private sector, nonprofit organizations, and governments
have resulted in innovative new approaches to a variety of global challenges, including public health, disaster response, and poverty reduction.
Instead of merely reacting to crises and relying solely on traditional
GEORGIA LEVENSON KEOHANE is a Senior Fellow at New America and the author of
the forthcoming book Capital and the Common Good: How Innovative Finance Is Tackling
the Worlds Most Urgent Problems.
SAADIA MADSBJERG is Managing Director of the Rockefeller Foundation.
July/August 2016
161
funding, financiersworking closely with governments and nongovernmental organizationsare merging private capital markets with public
systems in ways that promote the common good and make money for
investors as well. By relying on financial tools such as pooled insurance
and securitized debt, these effortswhich have come to be known as
innovative financecan unlock new resources and lead to costeffective interventions. At the same time, such solutions generate
profits and give investors an opportunity to diversify their holdings
with financial products whose performance isnt tied to that of the
overall economy or financial markets.
Technological advances and creative thinking have led to a boom in
innovative finance. To realize its full potential, however, solving
public problems by leveraging private capital requires more attention
from policymakers, who should consider a series of steps to encourage
even more progress in this area.
A SHOT IN THE ARM
A wide range of players have begun to embrace innovative finance,

including treasury departments, multilateral development agencies,
nonprofit financial firms, and traditional investment banks. In most
cases, philanthropic foundations have stepped up with seed money.
Government aid agencies have then put new concepts into practice by
providing funds to create new financial vehicles.
The term innovative finance suggests complexity, but its less complicated than it sounds. Three recent examples help demonstrate what
it meansand what it can do.
In the summer of 2002, the United Kingdoms Treasury concluded
that the governments budget had not provided enough funding to
honor the countrys commitment to the Millennium Development
Goals, a set of ambitious global efforts to tackle poverty and its many
effects. The British were hardly alone in this conundrum: in many of
the 189 countries that had agreed to the MDGs, officials had realized
that good intentions and bold aid pledges would not yield enough
money to make good on their promises. Gordon Brown, then the
British chancellor of the exchequer, believed that private-sector
expertise and capital markets might be able to help, and he approached
the investment bank Goldman Sachs. The firms bankers turned to the
tool kit of so-called structured finance to transform pledges for future
aid spending into immediate funding for MDG projects.
162
In essence, Goldman Sachs plan was one that would be familiar to

people who hold home mortgages, and who thus borrow from their
future selves to pay for the housing they need today. Although at that
moment, governments in the United
Kingdom and elsewhere were short of
Innovative finance leads to
cash for their MDG spending, they had
pledged to devote substantial amounts cost-effective international
to MDG projects over the course of the aid, generates profits, and
next 15 years. That promised future lets investors diversify their
spending represented a kind of underlying assetsimilar to a mortgage holdings.
holders homewhich Goldman Sachs
wagered investors would find attractive. The innovation was to
conceive of a new type of financial product: a bond whose yields
would be furnished by future government development aid rather
than by the proceeds of a specific project, such as road tolls or
water-usage fees.
The British government and its banking partners also identified
what they believed to be the best way to spend the money they would
raise by selling such bonds: on immunization campaigns that would
help reach the MDGs public health targets. In 2006, they founded the
International Finance Facility for Immunisation (IFFIm) and
developed the worlds first vaccine bonds. Fitch Ratings, Moodys
Investors Service, and Standard & Poors gave the bonds a AAA (or
equivalent) rating, and IFFIm conducted its first bond issue in
November 2006, raising $1 billion. Institutional investors such as
pension funds and central banks, as well as retail investors, purchased
bonds that matured after five years and that offered an annual yield of
five percent31 basis points above the benchmark rate offered at
that time by the five-year U.S. Treasury bond. In the years since,
IFFIm has issued 30 bonds in a range of currencies and term lengths
for a variety of investors, from institutions to private individuals,
and has raised $5.25 billion. IFFIm recently further expanded its
investor base by issuing $700 million worth of sukuk, or Islamic
bonds, which adhere to Islamic lending rules by eschewing interest
charges or payments.
To help ensure that this money would be spent in the most costeffective way, IFFIm partnered with Gavi, the Vaccine Alliance, a
nonprofit that is funded in part by the Bill & Melinda Gates Foundation
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and that specializes in large-scale immunization programs and creative

ways to fund them. IFFIms bond issues helped Gavi increase its
annual budget from $227 million in 2006 to $1.5 billion in 2015 and
expand programs such as a polio eradication initiative that has financed
the development and testing of new vaccines and the stockpiling of
proven ones in places such as the Democratic Republic of the Congo
and India.
A 2011 evaluation of IFFIm conducted by the health-care consulting
company HLSP (now part of Mott MacDonald) credited IFFIm with
saving at least 2.75 million lives and improving the quality of millions
more. All the while, IFFIm has allowed the United Kingdom and
other donor countries to make good on their MDG commitments and
has provided investors with healthy, reliable returns. Two representative
examples include a three-year, floating-rate sukuk that IFFIm issued
in 2015, which received a AA rating, offered investors a quarterly
coupon payment that was 14 basis points higher than the benchmark
three-month U.S. dollar LIBOR rate, and raised $200 million, and a
five-year kangaroo bond (denominated in Australian dollars and
subject to Australian laws and regulations) that IFFIm issued in 2010,
which received a AAA rating, offered investors a 5.75 percent fixed rate
(76 basis points over the benchmark Australian Government Bond
rate), and raised $400 million in Australian dollars.
MAKE IT RAIN
The semi-arid Sahel region, which stretches across northern Africa, is

no stranger to droughtsnor to the famines that can follow in their
wake. There have been three major droughts in the area in the last ten
years, which have reduced the food security of millions of people.
The traditional response to such emergencies consists of a UN appeal
to donor countries for financial aid, which usually arrives too late to
prevent the worst effects of a drought. But last year, something different happened.
In January 2015, soon after a drought struck the region, three
countriesMauritania, Niger, and Senegalreceived an unusual
set of payments totaling $26 million. Rather than aid donations,
they were payments resulting from claims the countries made on
drought insurance policies they had purchased the previous year.
The total dollar amount might seem modest, but the moneys effects
were magnified by the speed with which it arrived: the countries
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Liquidity crisis: a woman in a dry riverbed in Mauritania, June 2007
P A L L AVA B A G L A / C O R B I S V I A G E T T Y I M A G E S
received their payments even before the UN had managed to issue

an appeal for aid. Mauritania used the money to make timely food
deliveries to those most in need in the Aleg area, preventing many
families from deserting their homes in a desperate attempt to
survive. Authorities in Niger used the money to fund work programs
for farmers in the Tillabri region who could no longer afford to
feed their families after their crops failed. Senegal used its funds to
distribute food to the hardest-hit households and also to give
subsidies to ranchers who otherwise might have lost their livestock.
These payouts were made possible by the African Risk Capacity
(ARC), a specialized agency of the African Union, and its financial
affiliate, the ARC Insurance Company, which is jointly owned by the
unions member states. Launched in 2012 with funding from the
Rockefeller Foundation and other organizations, and born out of
frustration with the inefficiencies of the international emergency aid
system, ARC was established to help African countries build up their
resilience to natural disasters. Capitalized with development assistance
from the Kf W Development Bank, which is owned by the German
government, and from the United Kingdoms Department for International Development, the ARC Insurance Company was established
in 2014. Kenya, Mauritania, Niger, and Senegal were the first African
countries to sign up for a so-called pooled risk insurance product. For
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165
annual drought coverage of up to $60 million, each country paid an

annual premium of between $1.4 million and $9 million: around half
the amount that any one country would have had to pay on its own
for a similar level of coverage. ARC has since been backed by some of
the worlds largest reinsurance companies, including Swiss Re and
Munich Re.
In addition to providing access to insurance, ARC encourages preparedness. Before countries can purchase a policy, they must produce
detailed plans demonstrating that they will use any payments they
receive in a timely and effective manner. The planning relies heavily
on Africa RiskView, a software platform that was initially developed
by the UN World Food Program with funding from the Rockefeller
Foundation and that projects crop losses and the cost of weatherrelated difficulties using advanced satellite data and detailed records
of past droughts and subsequent emergency-response operations.
ARC has the potential to transform the way developing countries
manage the costs of natural disasters, demonstrating that it is possible
to shift the burden from governments (and poor and vulnerable populations) to global financial markets, which are much better equipped
to handle risk. To date, ARC has issued $500 million in drought insurance to ten countries, and by 2020, ARC aims to provide $1.5 billion in
coverage to approximately 30 countries, helping protect some 150 million
Africans against a variety of environmental risks, including extreme
heat, droughts, floods, cyclones, and even pandemics.
PAYING FOR SUCCESS
Innovative finance is not just a developing-world phenomenon. In

wealthier economies, new financial tools have been brought to bear on
a wide range of challenges, including public health, an area in which
traditional approaches often fail to meet the urgent need for prevention and early intervention. Consider the case of the Nurse-Family
Partnership, a nonprofit organization in the United States that sends
nurses to make home visits to low-income, first-time-mothers, working
with them from pregnancy until their child is two years old. The NFP
has an impressive track record of improving maternal and child health
and supporting self-sufficiency. Indeed, it is one of the most rigorously
tested antipoverty interventions in U.S. history; 30 independent evaluations have measured its effects. A 1997 study published by researchers
at three American universities found that 15 years after participating
166
in the NFPs first-time-mother program, children were 79 percent less

likely to have suffered state-verified abuse or neglect, and mothers
spent 30 fewer months on welfare, on average. In 2013, the Pacific
Institute for Research and Evaluation found that the program had a
pronounced positive impact, contributing to healthy birth outcomes,
child health and development, and even crime prevention, and
estimated that for each family served, the government saved $40,000
in spending on things such as criminal justice systems, special
education, and Medicaid.
Yet despite this track record, the NFP, like so many effective social
programs, has had trouble securing the public dollars it needs to serve
more families in the 37 states in which
it operates. So the NFP has begun to
Innovative finance has the
explore partnerships to secure new
sources of private funds in some of the potential to transform the
states with the most need, including way developing countries
South Carolina, where 27 percent of manage the costs of natural
the states children live in poverty. In
February 2016, the NFP, the South disasters.
Carolina Department of Health and
Human Services, and the Childrens Trust of South Carolina entered
into a groundbreaking pay for success contract structured and
overseen by a nonprofit financial organization called Social Finance.
(As part of the initiative, the state has also received technical support
from experts at the Harvard Kennedy Schools Government
Performance Lab.) The contract calls for private investors to provide
the NFP with $17 millionmoney that, along with around $13 million
in federal Medicaid reimbursements, the group will use to expand its
services to 3,200 mothers in South Carolina. If the NFPs interventions
succeed in demonstrably improving the lives of the participants by
hitting specific targetsreducing the number of pre-term births,
decreasing child hospitalizations and emergency-room use, promoting
healthy spacing between births, and serving more first-time mothers
in the lowest-income communitiesthe investors can be repaid with
money set aside by South Carolina and can expect to receive a return
of somewhere between five and 13 percent, assuming a performance
similar to those of previous pay-for-success arrangements. If the NFP
fails to meet the goals, the investors will lose their principal and the
government will owe them nothing. The outcomes will be measured
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167
against a randomized control trial, and the evaluation will be overseen

by the Abdul Latif Jameel Poverty Action Lab at the Massachusetts
Institute of Technology.
Such arrangementsof which the NFPs is one of the largest, but
not the firstare sometimes called social-impact bonds. That is a bit
of misnomer: a contract such as this is less like a bond and more like
an equity investment, since its returns depend on performance and
investors share in both the potential upside and the risk. In the past
five years, public-private coalitions have entered into more than 50 of
these kinds of pay-for-success agreements in Asia, Europe, the Middle East, and North America, addressing a variety of issues, including
public health, work-force development, foster care, military veteran
reentry, housing, education, and criminal justice. Current estimates
place the global market for such investments at around $150 million
and predict that it will grow to somewhere between $300 million and
$500 million over the next few years.
MORE BANG FOR THE BUCK
A number of factors favor the advance of innovative finance. First

among them are the exceptionally low interest rates in recent years,
which have whetted capital markets appetite for new kinds of investment vehicles, especially those whose performance doesnt necessarily
depend on broader economic or financial trends. Innovative finance
can provide value to investors even when more traditional equity and
bond markets falter. Even if interest rates begin to rise, as many
expect they will, innovative financial solutions have already proved
their value and will likely endure.
But to grow and expand, such products must reach a wider pool of
capital, moving beyond the institutional investors who currently
represent the sectors most active players. Some innovative financial
products are already available to retail investors, primarily through
specialized investment funds, such as the Goldman Sachs Urban
Investment Group, and through donor-advised funds that manage
investments for major charities. And a growing number of products,
including vaccine bonds offered by IFFIm in Japan, have become
even more easily available to retail investors.
To achieve larger scale, the developers of innovative financial
products must continue to provide attractive yields and further
mitigate the risksreal or merely perceivedposed to investors who
168
want to enter this still unfamiliar terrain. Financial professionals who

design these products need to take better advantage of government
guarantees and government insurance, such as the Development
Credit Authority program run by the U.S. Agency for International
Development, which provides partial debt guarantees to investors
and is backed by the U.S. Treasury. Yet fostering greater participation
will require more than competitive returns. Investors also need
reliable data to assure them that innovative finance will help them do
well while doing good. Here, technological innovation is complementing financial innovation. Consider, for example, recent advances
in remote sensors, which can measure the effects of complex processes
such as deforestation. The new availability of such data has made it
possible to design pay-for-success contracts that depend on rigorous
monitoring. Meanwhile, more accurate and comprehensive satellite
imagery has also made it possible to better assess the threats posed
by bad weather and natural disasters, allowing financiers to develop
more sophisticated insurance-based investment products, such as the
natural-disaster protection plans now spreading in Africa.
Government policy is also beginning to shift in ways that will
encourage more innovative finance. For example, in October 2015,
the U.S. Department of Labor repealed restrictive rules that had
prevented U.S. pension funds from considering social, environmental,
and good-governance factors when making investment decisions. This
ERISA reforma reference to the Employee Retirement Income
Security Acthas the potential to catalyze investment in innovative
financial products by pension funds that must follow ERISA guidelines:
a huge source of potential funding. Meanwhile, in 2015, at a summit at
Schloss Elmau, in Germany, the G-7 countries adopted the InsuResilience
Initiative, a collaboration between the G-7 and a number of countries
that are particularly vulnerable to the effects of climate change; the
initiative seeks to extend insurance protection against climate disasters
to 400 million people. Further progress will require leadership from
donor countries and coordinated international policy efforts; one
good model is the Social Impact Investment Taskforce, a G-8 initiative
that was launched by British Prime Minister David Cameron in 2013
and that tracks and reports on global trends in impact investing.
Investor confidence in innovative finance would also improve if
there were clearer rules and norms regarding how financial analysts
should measure and assess environmental and social factors and integrate
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169
their findings into their reporting. One important step in this direction
was the establishment, in 2011, of the Sustainability Accounting
Standards Board, a U.S.-based nonprofit that develops industry-specific
methods for addressing such factors in their accounting procedures
and financial filings.
In addition, governments must improve their ability to make longterm decisions about spending on investment in social and economic
development, at home and abroad. Budgeting processes in most rich
countries do not allow for strategic commitments to long-term development aid: the creation of IFFIm would have been impossible had
the participating countries not made exceptions to their own budgeting
rules. In the United States, Congress should pass legislationsuch as
the Social Impact Partnership Act, which was proposed in 2015 with
bipartisan sponsorshipthat would direct federal funding to publicprivate innovative financial initiatives at the state and local levels.
CAPITALIZE ON CAPITAL
In February, international donors met in London and made an

impressive pledge of roughly $11 billion in aid and another $40 billion
in loans to deal with the enormous costs of the Syrian civil war,
including the migrant flows currently overwhelming the Middle East
and Europe. Never has the international community raised so much
money on a single day for a single crisis, boasted UN SecretaryGeneral Ban Ki-moon. But veterans of humanitarian aid and crisis
response watched the conference with a sinking feeling, knowing that
a great deal of promised funding fails to materialize and that even the
best-intentioned aid frequently falls short of achieving its goals.
Innovative finance can help improve the international communitys
response to some of the most costly aspects of such crises. Imagine,
for example, how pay-for-success contracts or approaches similar to
IFFIms could allow governments to raise funds quickly for the healthcare, housing, and educational needs of refugees by securitizing future
spending. Such proposals might once have seemed far-fetched;
not any longer. With continued philanthropic support and sustained
commitment from governments, innovative finance can put the power
of private capital markets to work for the public good.
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REVIEWS & RESPONSES

Capitalism, in its
current form, has
reached a dead end.
Mark Blyth
AL K I S KO N STA N T I N I D I S / R E U T E R S
Mark Blyth
172
The Many Africas

Ian H. Solomon
180
Having It All
Victoria de Grazia
187
Capitalism in
Crisis
What Went Wrong and What
Comes Next
Mark Blyth
Capitalism: A Short History
BY JRG EN KOCKA. Princeton
University Press, 2016, 208 pp.
Buying Time: The Delayed Crisis of
Democratic Capitalism
BY WOLFGANG STREECK. Verso,
2014, 240 pp.
Postcapitalism: A Guide to Our Future
BY PAUL MASON. Farrar, Straus and
Giroux, 2015, 368 pp.
ver since the emergence of mass

democracy after World War II,
an inherent tension has existed
between capitalism and democratic
politics; capitalism allocates resources
through markets, whereas democracy
allocates power through votes. Economists, in particular, have been slow to
accept that this tension exists. Instead,
they have tended to view markets as a
realm beyond the political sphere and
to see politics as something that gets in
the way of an otherwise self-adjusting
system. Yet how democratic politics
and capitalism fit together determines
MARK BLYTH is Eastman Professor of Political

Economy at Brown University.
172
todays world. Politics is not a mistake

that gets in the way of markets.
The conflict between capitalism and
democracy, and the compromises the
two systems have struck with each other
over time, has shaped our contemporary
political and economic world. In the
three decades that followed World War II,
democracy set the rules, taming markets
with the establishment of protective
labor laws, restrictive financial regulations,
and expanded welfare systems. But in the
1970s, a globalized, deregulated capitalism,
unconstrained by national borders, began
to push back. Today, capital markets and
capitalists set the rules that democratic
governments must follow.
But the dominance of capital has now
provoked a backlash. As inequality has
widened and real wages for the majority of
people have stagnatedall while governments have bailed out wealthy institutions
at the first sign of troublepopulations
have become less willing to accept the
so-called costs of adjustment as their
lot. A double movement, in the words
of the Hungarian historian Karl Polanyi,
occurs in such moments as these, when
those who feel most victimized by markets
reclaim the powers of the state to protect
them. The rise of Bernie Sanders and
Donald Trump in the United States is a
product of this reaction, as is the strengthening of populist parties in Europe.
Three recent books shed light on this
continuing tension between the imperatives of the market and the desires of
the people. Together, they offer a biography of capitalism: where it came
from, what went wrong, and where it
may be going in a world of stagnant
living standards, widening inequality,
and rising carbon emissions. And the
picture they paint is a bleak one.
THE RISE OF CAPITALISM
Capitalism: A Short History, by the German

historian Jrgen Kocka, is aptly named. In
just 169 pages, it tells the story of capitalism from its origins in the ancient longdistance trade routes of Mesopotamia to
the 2008 financial crisis. This is no mean
feat. Yet such brevity requires some
simplification, which comes at a cost.
For Kocka, capitalism is an essential
concept for understanding modernity.
More important, it is a set of institutions
that enshrine property rights, promote
the use of markets to allocate resources,
and protect capital. And it is also an ethos,
he claims, a set of principles and ideas.
Defining capitalism so expansively allows
Kocka to see its earliest forms developing
among traders in Mesopotamia, in the
eastern Mediterranean, and along Asias
Silk Road, until, by the eleventh century,
the beginnings of a merchant capitalist
bourgeoisie had emerged on the Arabian
Peninsula and in China.
Capitalism developed later in Europe,
boosted by long-distance trade with
Asia and the Arab world, between the
twelfth and fifteenth centuries. Merchants
formed cooperative institutions that led
to greater risk sharing, which encouraged
the accumulation of capital. This development, Kocka writes, led to the formation
of enterprises with legal personalities of
their own, rudimentary capital markets,
and, finally, banks whose fortunes became
intimately connected with the rise of
modern states through the management
of their debts.
This alliance between merchant
capitalism and the emergent state helped
usher in the age of colonialism. Merchants,
entrepreneurs, and conquistadors, with
increasingly powerful states backing
them, propelled European expansion.
Critical to this expansion was the triangular trade, in which European

merchants brought finished goods to
Africa, traded them for slaves, and
then exchanged those slaves in the New
World for sugar and cotton that went
back to Europe. This process helped
embed capitalism deeper in Europe
than in the Middle East and China: the
scale of investment that such ventures
required led to the rise of what would
become known as joint-stock companies
and the beginnings of what economic
historians call finance capitalism
stock exchanges opened in Antwerp in
1531 and Amsterdam in 1611.
Much of the profits that early European capitalists enjoyed came from these
profoundly illiberal activities. As Kocka
points out, capitalism . . . contains little
in the way of resistance against inhumane
practices. Yet in the long run, capitalism
laid the groundwork for democracy,
because the wealth it generated, and
the possibilities that came with its new
institutions, disrupted the guilds, helped
cities expand, and allowed nineteenthcentury industrialization to evolve into
twentieth-century managerial capitalism.
BLAME THE BANKERS
In Kockas narrative, each stage of capitalism begets the next, in an almost natural
progression. Capitalism simply marches
onward, for the most part benevolentlyat
least once the reformers abolished slavery
and colonialism. But beginning around
1980, he writes, something started to go
wrong. Firms started to derive a larger
share of their profits from the financial
sector than they did from real investments,
a process economists call financialization.
This process, according to Kocka,
imparted a new quality to the system.
July/August 2016
173
Mark Blyth
Modern finance, in contrast to the

earlier, productive forms of finance
that Kocka admires, seems to mainly
consist of unproductive locust hedge
funds that cannibalize good firms,
contributing nothing to production in
the wider economy. Meanwhile, Kocka
insists, since the 1980s, governments
have failed to exercise self-restraint, and
publics have lived beyond their means.
Massive growth in public and private
debt in the developed world has been
the result, which represents a lasting
source of destabilization for capitalism.
But this trenchant critique of modern
finance sits oddly alongside the rest of the
book. For Kocka, the system was doing
just fine until the rot of modern finance
set in. He insists that financialization
represents a break in the evolution of
capitalism. But he fails to explain where it
came from, if it didnt emerge directly
from those earlier forms of capitalism.
After all, the modern finance that
Kocka condemns is not so different from
the earlier, productive finance that he
lauds. The financiers that got Germany
into trouble in 2007 through their
exposure to U.S. subprime mortgages
were not locust hedge funds but
traditional German development banks.
And one of the worlds largest derivatives
traders at the time of the crisis was
Deutsche Bankhardly a new institution
on the financial scene. In short, the
idea that financialization may be not a
perversion of capitalism but the next stage
in its evolution seems to be a little too
uncomfortable for Kocka to fully consider.
IN THE RED
The German sociologist Wolfgang

Streeck also sees modern capitalism as
flawed. Yet its current plight is not an
174
aberration, he argues in Buying Time, but

a direct consequence of the unraveling
of the postwar marriage of capitalism
and democracy.
Streecks account focuses on Michal
Kalecki, a Polish economist who came
to prominence in the interwar period.
Kalecki published a remarkable article
in 1943 that predicted the economic
turmoil of the 1970s. Kalecki argued
that if full employment ever became the
norm, workers would be able to move
freely from job to job. Not only would
this undermine traditional authority
relationships within firms; it would also
push wages up regardless of productivity levels, since workers would have
more leverage to demand higher wages.
In response, firms would have to raise
prices, creating a spiral of inflation that
would eat into profits and lower real
wages, which would, in turn, promote
greater labor unrest. Kalecki argued
that to restore profits, capitalists would
rebel against the system that promoted
full employment. In its place, they would
seek to create a regime in which market
discipline, with a focus on price stability
rather than full employment, would be
the primary goal of policy. Welfare
protections would be rolled back, and
the discipline that unemployment provides
would be restored.
Kaleckis predictions proved astonishingly accurate. By the 1970s, as
Kalecki had foreseen, inflation had
risen dramatically, profits had fallen,
and capital began its rebellion. Organizations as diverse as the Swedish
Employers Confederation and the
Business Roundtable in the United
States pressured governments to reduce
taxes, especially on high earners. But
cutting taxes in the recessionary early
1980s meant that revenues fell, deficits

widened, and real interest rates rose as
those deficits became harder to finance.
At the same time, conservative governments, especially in the United Kingdom
and the United States, set out to weaken
labor and shrink the role of the state as
they dismantled the regulations that
had reined in the excesses of finance
since the 1940s.
The financial industry could now
grow unchecked, and as it expanded,
investors sought safe assets that were
highly liquid and provided good returns:
the debt of developed countries. This
allowed governments to plug their
deficits and spend more, all without
raising taxes. But the shift to financing
the state through debt came at a cost.
Since World War II, taxes on labor and
capital had provided the foundation of
postwar state spending. Now, as governments began to rely more and more on
debt, the tax-based states of the postwar
era became the debt-based states of the
contemporary neoliberal era.
This transformation has had profound political consequences. The
increase in government debt has allowed
transnational capitalists to override
the preferences of domestic citizens
everywhere: bond-market investors
can now exercise an effective veto on
policies they dont like by demanding
higher interest rates when they replace
old debt with new debt. In the most
extreme cases, investors can use courts
to override the ability of states to default
on their debts, as happened recently in
Argentina, or they can shut down an
entire countrys payment system if that
country votes against the interests of
creditors, as happened in Greece in 2015.
The financial industry has become,
Streeck writes, the second constituency

of the modern state, one more
powerful than the people.
This shift from taxes to debt initially
bought time for capitalism: it restored
profits, destroyed labors ability to demand
wage increases, tamed inflation to the
point of deflation (which increases the
real value of debt), and even seemed to
provide prosperity for all after the crisis
of the 1970s. Mortgages and credit cards
allowed private citizens to rack up deficits
of their owna process the sociologist
Colin Crouch has described as privatized
Keynesianism. But it was all an illusion.
Credit sustained the appearance of prosperity for the lower classes. In reality, the
rich captured most of the newly created
wealth. In the United States, for example,
the top one percent more than doubled
their share of the national income over
the last three decades, as wages for the
bottom 60 percent stood still.
In 2008, the financial crisis shattered
this illusion. Governments bailed out
the banks and transferred the costs of
doing so to public budgets. Public debt
exploded as governments bailed out the
rich, and austerity measures, intended
to reduce this new debt, have only compounded the losses of the majority of
citizens. Capital continues to dominate
democracy, especially in the EU: in
Greece and Italy in 2011, technocrats
replaced democratically elected governments, and in 2015, the so-called troika
the European Central Bank, the European
Commission, and the International
Monetary Fundbulldozed Greek
democracy.
So where Kocka blames profligate
governments and debt-laden citizens
for the current crisis, Streeck instead
sees them as the victims. Its not lavish
July/August 2016
175
Mark Blyth
public spending, he shows, but rather

falling tax revenues and financial bailouts
that have created so much government
debt and empowered capital. If states
are spending extravagantly on voters, as
Kocka and those who fetishize austerity
maintain, there is precious little to show
for it. Had the rise in public debt been
due to the rising power of mass democracy, Streeck writes, it would be
impossible to explain how prosperity . . .
could have been so radically redistributed
from the bottom to the top of society.
Streeck foresees a prolonged period
of low growth and political turmoil
ahead, in which states commanded by
creditors, allied with transnational investors, struggle to get resisting debtor
states into line: think of Germany and
Greece. The clock is ticking for democracy, Streeck writes, but it must remain
an open question . . . whether the clock
is also ticking for capitalism.
NEOLIBERALISM IS BROKEN
For the British journalist Paul Mason,

that question is closed: capitalisms current
condition is terminal. In Postcapitalism,
Mason writes that capitalism is a complex,
adaptive system which has reached the
limits of its capacity to adapt. The roots
of capitalisms demise, Mason argues,
lie in the 1980s (also when Kocka saw
problems arise), when capitalism was
taken over by neoliberalism: an ideology
and a set of policies that recognize no
limits to the commodification of the
world. Unfortunately for capitalism,
neoliberalism is broken. To explain
why, Mason turns to the work of Nikolai
Kondratieff, a brilliant Soviet economist
whom Stalin had murdered in 1938.
According to Kondratieff, capitalism
goes up and down in 50-year cycles. At
176
the bottom of a cycle, old technologies

and business models cease to function.
In response, entrepreneurs, both public
and private, roll out new technologies
to open up untapped markets, and an
upswing begins. This leads to a loosening
of credit, which accelerates the upswing.
These cycles bring to mind the concept
of creative destruction popularized
in the 1940s by the economist Joseph
Schumpeter. But Mason downplays the
importance of the entrepreneur, whom
Schumpeter cast in a central role, and
focuses instead on the effect of classbased politics on productivity.
Masons first cycle runs from 1790 to
1848. The upswing began when British
entrepreneurs first harnessed steam power
to run their factories, and it ended with
the depression of the 1820s. The subsequent downswing produced the revolutions
of 1848, when the emergent bourgeois
classes of Europe burst onto the historical
stage. Masons second cycle runs from
1848 to the mid-1890s. The spread of
railways, the telegraph, and shipping
drove growth until the depression of
the 1870s. In the decades that followed,
strong labor movements gained momentum all over the world, and capital, in
response, became more concentrated.
Electricity and mass production then
powered a third upswing that crashed
in the Great Depression and the massive
capital destruction of World War II.
After the war, a fourth cycle began with
innovations in electronics and synthetics,
improvements in the organization of
production, and labors relative victory
over capital in the institutions of the
welfare state. That cycles upswing
peaked in the mid-1970s, but this time,
there was no major depression. The
fourth cycle stalled.
THE END OF CAPITALISM
Masons argument about why a major

depression has not arrived during the
past 40 years, the Great Recession
notwithstanding, is partly conventional
and partly surprising. The conventional
explanation has four components. First,
after U.S. President Richard Nixon took
the dollar off the gold standard in 1971,
the United States moved to a paper
standard, which eliminated the constraints
on deficit financing that the gold standard
entailed. Second, the financialization
of the developed economies masked the
reality of stagnant incomes by substituting
credit for wage increases. Third, the
emergence of global imbalances in finance
and trade allowed the United States to
keep consuming as Asian countries stepped
in as producers. Finally, advances in
information technology empowered capital
and weakened labor, and helped spread
neoliberal practices across the globe.
That is a fairly familiar analysis. The
unconventional part of Masons answer
harks back to Marx and Kalecki and
stresses how neoliberalism managed
to prevent profits from falling more
effectively than any previous economic
system. Mason borrows from Marx and
Kalecki the idea that average profits in
any market will fall due to both competition and the flood of capital into a
new market, which reduce returns on
investment. As a result, capitalists
will always try to replace human labor
with machines to protect their share of
profits. During a downswing, as profits
shrink, capitalists will do everything
they can to boost their share of profits
at the expense of labor: they will force
employees to work intensively and will
accelerate their attempts to replace
workers with machines.
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177
Mark Blyth
In the past, such attempts to restore

profits simply by crushing labor failed.
In each of the first three waves, one way
or another, workers managed to resist.
The best examples of such resistance were
the postwar constraints on capitalism:
strong unions, rigorous regulations,
and generous welfare systems. When
workers defy capitalists attempts to
squeeze profits from them by building
such institutions, firms have to adapt.
Rather than fight labor over the fixed
distribution of income, they are forced
to invest in improving workers productivity, to the benefit of both parties: this
was the postWorld War II growth story.
But under neoliberalism, capitalists
have managed to squeeze labor in an
entirely new way. Globalization obliterated the power of workers to resist,
because if they did, capitaland jobs
could easily flow elsewhere. This explains
why the number of labor strikes has
declined so steeply all over the world.
As Mason writes, The fourth long
cycle was prolonged, distorted and
ultimately broken by factors that have
not occurred before in the history of
capitalism: the defeat . . . of organized
labour, the rise of information technology
and the discovery that once an unchallenged superpower exists, it can create
money out of nothing for a long time.
Still, Mason believes that these
factors have only delayed capitalisms
inevitable collapse. Where Marx thought
that organized labor would rise up and
overthrow the system, Mason bets that
information technology will destroy it
from within. Digital goods, such as
music files and software, create a real
problem for markets: they destroy the
role of price in balancing supply and
demand. People can copy digital goods
178
freely forever: they have zero marginal

cost and are nonrival in consumption.
When one person downloads a music
file or a piece of code from the Internet,
for example, she makes it no harder
for anyone else to do the same. So the
only way that firms can maintain their
profits is by enforcing monopoly property
rights: consider Apple and Samsung
suing each other for the right to profit
from patents or the need for major
pharmaceutical companies to keep
drugs prohibitively expensive.
Mason is optimistic about what will
replace the profit motive. He points to
decentralized networks such as Wikipedia, the biggest information product in
the world . . . made by 27,000 volunteers,
for free, and the rise of the so-called
sharing economy: nonmarket peer production systems, where work has value
but cannot be priced in a traditional
manner. The result is a contradiction
in modern capitalism . . . between the
possibility of free, abundant socially
produced goods, and a system of
monopolies, banks and governments
struggling to maintain control over power
and information. In such a world, the
central battle will be between those who
want to preserve property rights and
those who wish to destroy them in the
name of democracy. The stakes, Mason
argues, could not be higher. Without
the revolution he calls for, the world
will be vulnerable to a much greater
threat: catastrophic climate change.
WHAT COMES NEXT?
Masons chapter The Rational Case for

Panic confronts what most economists
and politicians tend to shy away from:
the idea that capitalism in its current
form is going to kill everyone. Of course,
people have predicted an environmental

apocalypse before. A group of experts
called the Club of Rome famously
published The Limits to Growth in the
1970s, forecasting economic and environmental crisesand those predictions
have failed to come to pass. But this
time may be different.
The science behind climate change is
better this time around, and its conclusive. The world is in trouble. As Mason
notes, in 2012, the International Energy
Agency predicted that even if world
leaders implemented all the announced
emissions-reduction plans, carbon dioxide
emissions would rise by another 20 percent
by 2035. The world cannot burn 60 to
80 percent of remaining known carbon
fuel stocks without causing catastrophic
warming. But under capitalism, this is
exactly what the world will do. Carbon
taxes will do little to change this reality.
Add to this mix an aging developed
world with huge pension liabilities and
a climate-shocked developing world of
young people who have nowhere to go,
and its little wonder that the Organization for Economic Cooperation and
Development has forecast stagnant
growth for the global economy for the
next 50 years and an almost 40 percent
rise in inequality in the worlds rich
countries. But despite this stark warning, Mason emphasizes an aspect of
capitalism that both Kocka and Streeck
underplay: its adaptive potential.
It is highly likely, for instance, that
statistics such as GDP underestimate the
impact of new information-based technologies. Hal Varian, Googles chief economist, might be exaggerating when he
claims that the free search engine is
worth $150 billion to users in the United
States every year, but there is no doubt
that Google has transformed the economics of finding information. Google

saves everyone time and moneybut
that doesnt show up in GDP. Although
capitalism may be reaching its adaptive
limits, it has been more robust than
most doomsayers realize.
Nonetheless, Mason thinks that
climate change may be the one bullet
that capitalism cannot dodge. Neoliberals
often naively assert that capitalism will
generate a miracle technology at just the
right moment to stave off catastrophe.
But Mason argues that previous Hail
Mary passes, such as geoengineering and
carbon capture, have failed to pay off.
What gives him hope is that large-scale
technological innovations may not be as
important as micro-level changes in the
structure of property rights themselves.
Whether or not such a restructuring
will be enough to save the world remains
unclear. But Mason is right to hold out
hope. Capitalism, in its current form,
has reached a dead end. If ever there
were a time for pessimism of the intellect
and optimism of the will, it is now.
July/August 2016
179
The Many Africas

Beyond Continental
Caricatures
Ian H. Solomon
Africa: Why Economists Get It Wrong
BY MORTEN JERVEN. Zed Books,
2015, 176 pp.
The Lion Awakes: Adventures in Africas
Economic Miracle
BY ASHISH THAKKAR. St. Martins
Press, 2015, 240 pp.
The Next Africa: An Emerging Continent
Becomes a Global Powerhouse
BY JAKE BRIGHT AND AUBREY
HRUBY. Thomas Dunne Books, 2015,
304 pp.
n his memoir, The Lion Awakes,

Ashish Thakkar describes how, as a
young entrepreneur selling computer parts across Africa in the 1990s,
he noticed that flights within the continent seemed to take longer than the
distances on a map would suggest. Were
the planes slower? he wondered. In fact,
he learned, the commonly used Mercator
projection vastly understates the size of
Africa, and its 54 countries, relative to
other continents. You wouldnt know it
from most maps, but the continent is
IAN H. SOLOMON is CEO of SolomonGlobal.

He served as U.S. Executive Director for the
World Bank Group from 2010 to 2013 and Vice
President for Global Engagement at the
University of Chicago from 2013 to 2016.
180
large enough to fit China, India, Mexico,

the United States, and western Europe
within its borderswith room to spare.
The distortion of Africa goes beyond
cartography; Western journalists and
academics have a history of misinterpreting and misrepresenting the region.
Failing to account for the size, diversity,
and dynamism of the continentand
relying on incomplete and inaccurate
datathey have fashioned easy-tocomprehend yet warped and incomplete
stories. In past decades, the main
story line tended to be one of failure,
focused on conflict, disease, corruption,
victimhood, and poverty. A headline
on the cover of The Economist in 2000
captured the gloom: The hopeless
continent. By 2011, however, the magazine touted an Africa rising. But
such simplistic optimism does not
capture the full story, either. With
more than one billion people, over
2,000 languages, and some of the
fastest rates of national GDP growth
in this century, the real Africa has
always been more complicated.
Challenging as it is to properly
capture the complexities and contradictions of a region as large, diverse,
and dynamic as Africa, three recent
books seek to replace the caricatures
of Africas economic performance with
more accurate pictures. Morten Jerven
picks apart the flawed analyses of mainstream economists, Thakkar recounts
his two decades of personal experience
as an entrepreneur, and Jake Bright
and Aubrey Hruby tally the risks and
benefits of doing business on the continent. Taken together, these books provide
a valuable corrective to the fraying
narrative of failure. The Africa that
emerges from their pages is one of
The Many Africas
remarkable energy, creativity, and

opportunity, in spite of the grave
challenges.
Ultimately, however, their accounts
still add up to an incomplete story. In
emphasizing economic and business
perspectives, the authors cannot tell
readers how much peoples lives are
actually improving, whether individuals are becoming more or less capable
of achieving their aspirations, whether
communities are becoming more or
less resilient to crisis, and whether the
distribution of benefits in Africa is
becoming more or less equal.
THE DEVIL IS IN THE DATA
According to Jerven, the dominant

narrative of African economic failure
persists because economists ask the
wrong question: they seek to explain
why Africa has failed rather than show
how Africa has actually performed.
In fact, over the last century, many
African economies have experienced
episodes of both growth and decline.
Immediately after independence in
the 1950s and 1960s, African economies
grew faster on average than the rest
of the world. They lagged behind from
the mid-1970s into the 1990s, largely
due to external shocks and bad policies,
before growth returned in the late 1990s.
Economists missed this variation,
Jerven argues, in part because they
were so intent on explaining failure.
They were also basing their analyses
on incomplete data sets and incorrect
assumptions. Nearly all economic data
capture only the value of goods that
flow through official channels, missing
the informal sector, even though it is
crucial to livelihoods across the developing world. Worse, when data are
missing for a country, economists

simply extrapolate from neighboring
countries, ignoring important differences in resource wealth, human
capital, and trade. Many data sets go
back only to 1960, so there is no historical context to explain the economic
activity that followed. Other data,
such as estimates of corruption, are
based on opinion surveys rather than
direct observation.
To illustrate the resulting distortion,
Jerven compares the rankings of 45
sub-Saharan countries by per capita
GDP in three commonly used data sets.
In one of these, Guinea ranks as the
seventh-poorest country, but in another,
it just misses inclusion among the ten
richest countries. Mozambique, depending
on the source, is among either the
eight poorest or the 12 richest African
countries. Given the uncertainty in the
data, its hard to see why anyone should
rely on policy recommendations based
on such flawed sources. Garbage in,
garbage out.
Jerven also charges that economists
mistake correlation for causation, leading
them to identify faulty silver-bullet
explanations for Africas economic
performance. He rejects arguments
that blame slow growth on the absence
of robust institutions, a lack of social
capital, or particular features of a countrys
history, ethnicity, climate, or geography.
Weak institutions may correlate with
low GDP, he argues, but studies have not
reliably demonstrated which way the
causality runs. He challenges the data
and conclusions in Daron Acemoglu
and James Robinsons Why Nations Fail,
which pinned the blame for poverty
on extractive government institutions.
To claim that Africa is poor because of
July/August 2016
181
Ian H. Solomon
weak institutions may get the relationship backward; poverty may be a cause
of weak institutions.
Ultimately, Jerven concludes that
although the narrative of chronic failure
is a distortion, so is the Africa rising
narrative. Again, the problem is exacerbated by the scarcity of reliable data.
He points out that many countries have
not updated the baseline data from
which they calculate GDP. In 2014, when
Nigeria updated the base year it uses to
estimate the size of various sectors, its
official GDP nearly doubled overnight,
surpassing that of South Africa. Was
the country suddenly twice as rich? Not
yet. As other African countries update
their own economic benchmarks, their
GDP figures will also rise, perhaps due
more to better measurement than to
increases in economic activitythus
making it harder to determine the real
rate of growth.
Finally, rising GDP figures reveal
nothing about the informal sector and
very little about a countrys level of
poverty or vulnerability to future shocks.
Jerven thus worries that such upticks
in GDP convey misleading information
about the conditions of average citizens
lives. To get a more accurate picture,
he calls on economists to capture
country-level nuances by studying
actual economies rather than fishing
from afar for correlations in abstract
numbers. This is valuable advice, but
even a careful study of actual economies will face many of the same
shortcomings that hinder broader
analyses, unless the quality and
availability of data improve substantially. Moreover, observers should
still pay attention to correlations
among growth and governance and
182
history, even when perfect causality

may not be established.
THE START-UP CONTINENT
For greater nuance and a larger dose of

optimism, look to The Lion Awakes, a
compelling homage to Thakkars family
and an argument for correcting the
reputation of the continent Thakkar
has come to know as an entrepreneur.
Contrary to its image in Western media,
Thakkar argues, Africa is not a hopeless
charity case but a continent open for
business. It is a good place to launch
and grow a profitable company, enjoy a
high quality of life, and even get rich.
Thakkars Mara Group, which invests in
companies across the region, is presented
as proof of this claim, and he offers his
personal story as a striking example of
the triumph of commerce and confidence over trauma.
Thakkar comes from a family of
Indian traders in Uganda. His parents
lost everything during the brutal reign
of Idi Amin; after Amin expelled Asians
from the country in 1972, they fled to
the United Kingdom, where Thakkar
was born. Years later, eager to return to
Africa, his family found itself in Rwanda
during the 1994 genocide. Once they
returned to Uganda, the 15-year-old
Thakkar began selling computer parts
he sourced from Dubai.
Thakkar recalls his early travels in
Africa in the mid-1990s, when running
water was a luxury, constant electricity
blackouts were the norm, and phones
didnt work. Around the turn of the
millennium, however, things started
to improve. Thakkar observed that in
places as diverse as Kampala, Nairobi,
Dar es Salaam, Lusaka, and Lagos,
customs officials in those once chaotic
The Many Africas
In the club: at Lagos Fashion and Design Week, Nigeria, October 2013
P E R-A N D E R S P E T T E R S S O N / G E T T Y I MAG ES
airports were starting to smile a bit

more and play by the rules. . . . The
potholes were getting fixed. Garbage
was being collected. Africa, particularly
within its cities, was shedding its past
and becoming a confident, viable place
for modern business. Thakkars own
interests expanded from computer sales
to include banking, real estate, information technology, call centers, glass
factories, packaging, philanthropy,
and more.
The key drivers of progress he
identifies include improved leadership
(exemplified in his view by President
Paul Kagame of Rwanda), an innovative telecommunications industry, an
energetic youth population unleashing
its pent-up demand, and the return of
a highly educated diaspora, especially
after the 2008 global financial crisis
reoriented African expatriates
perspective on the geography of

opportunity. Most important, he says,
was the arrival of cell phones; according
to a 2015 report by the telecommunications company Ericsson, the number
of mobile subscriptions in Africa has
reached 690 million.
Thakkar also highlights the development of technology hubs, such as
Kenyas Silicon Savannah, and the
explosion of Nollywood, Nigerias
$3.3 billion movie industry, and he
champions Africas many vibrant new
start-ups. For him, the answer to Africas
economic challenges is business, not
foreign aid. Western policies of institutionalized aid have done terrible
harm to Africa for decades, he writes,
whereas China has flourished economically without such aid.
In reality, however, China has
received billions of dollars in Western
July/August 2016
183
Ian H. Solomon
aid. And although aid to Africa has

not been as beneficial as its strongest
proponents claim, it has not been as
damaging as Thakkar suggests, either.
Aid should be judged at the level of
particular projects in individual countries over time; it is no more helpful to
caricature foreign aid than it has been
to caricature its recipients.
Kenya, now handles transactions equivalent to one-third of the countrys

entire GDP, providing millions of
Kenyans with an alternative to bank
accounts and credit cards. They also
document a thriving culture of entrepreneurship that has emerged across the
continent, including such start-ups as
BRCK (a rugged WiFi router developed
in Kenya and designed for rural areas)
OPEN FOR BUSINESS
and Jumia (a Nigerian e-commerce site
Bright and Hruby, both of whom have
that lets buyers pay cash on delivery).
experience with Africa in the private
They paint a picture of fast-paced
sector, present a similarly upbeat,
technological growth and innovation
although more analytic and cautious,
that, in some sectors, have surpassed
picture. They set out to achieve a balance and influenced the West.
between overly simplistic Africa rising
Despite their enthusiasm, Bright
narratives and what they criticize as
and Hruby catalog a number of chala new strain of Afro-pessimism. While lenges to continued growth. In several
recognizing the limitations on the
areas, Africa still accounts for less than
quantity and quality of available data,
its expected share of global activity.
they call for a multi-dimensional . . .
They call this the problem of less than
more refined and data-driven approach. 3 percent: even though it is home to
Over the past decade, Western
almost 15 percent of the worlds popubusinesses have started to take Africa
lation, Africa accounts for less than
more seriously. One factor behind this
three percent of Google hits, less
enthusiasm, Bright and Hruby note, has than three percent of global trade, less
been better governance, including more than three percent of mobile broadmultiparty elections, improvements in
band subscriptions, and less than
transparency, and tighter fiscal manage- three percent of global private equity
ment. Bright and Hruby attribute greater investment.
importance than Jerven does to the role
Africa also suffers from serious gaps
of institutions, yet demography may
in infrastructure. Only 32 percent of
matter most of all: Africa boasts the
sub-Saharan Africans have regular access
worlds fastest-growing population,
to electricity, and only one in four has a
largest youth population, most rapidly
bank account. Africas road network is
urbanizing population, and fastestsparse and potholed, with Nigeria, the
growing consumer class. The result
continents economic powerhouse, having
has been an explosion of demand for a
a rate of road penetration that is just
range of consumer basics, from air
15 percent of Indias. Just as Thakkar
travel to supermarket goods.
noticed decades ago, in many parts of
As does Thakkar, Bright and Hruby
the continent today, blackouts are still
tell the story of innovation. M-Pesa, a
frequent, running water remains a
mobile-phone-based payment system in luxury, and ATMs are largely absent.
184
Beyond these serious challenges,

there are three deal breakers for
Bright and Hruby that could set the
region back. Africas large and growing
unemployed youth population presents
one of the greatest risks to political and
social stability. The continued failure
of public institutions to deliver the
benefits of growth and higher incomes
to all groups, and not just a small elite,
also threatens progress. And a serious
and unexpected global economic shock
and not merely a slowdown in Chinas
growth ratecould prove devastating.
Notwithstanding these risks, the trends
are positive. Bright and Hruby, like Jerven
and Thakkar, conclude that Africas
progress and potential are outpacing
its challenges.
THE REAL AFRICA
My own experience, based on work in

more than a dozen African countries
over the past decade, leads me to a
similar conclusion. There is tremendous
promise in the dynamism of young
African students and entrepreneurs; in
Africas vibrant, growing cities; and in
countries on the continent that have
dramatically improved their leadership
and institutions. The regions abundant
world-class innovation and talent are
increasingly being harnessed to improve
lives and generate wealth. This is an
essential story to tell, and its telling is
long overdue.
But this is not the full story, which
is always much more complicated than
either success or failure. First, any aggregate portrait of a continent obscures its
heterogeneity. Every country exhibits
its own social, economic, geographic,
and political characteristics, and the
experience of the average Ghanaian,
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185
Ian H. Solomon
for example, bears little resemblance

to that of the average Sudanesejust
as the experience of one of Africas
billionaires would be unrecognizable
to one of its malnourished rural poor.
Although convenient for development
organizations, a single concept of
African growth may be less helpful in
understanding what Thakkar calls a
vast polyglot place and Bright and
Hruby describe as the most diverse
continent on the planet. This diversity
demands to be disaggregated at the
country and, most important, at the city
level. For now, the data are too limited
and unreliable, but that is changing as
new businesses develop new tools and
methods to close this data deficit.
Recognizing these differences will
make it easier to tackle what are genuinely continental challenges, such as
gaps in energy and infrastructure, sectarian strife, the risk of pandemic
disease, and the need for collective
action on climate change. These are
all problems of cooperation that can
be addressed only with an appreciation
of both the shared interests and the
differences.
Second, in todays interconnected
economy, no regions destiny is entirely
within its own control. High commodity prices and strong Chinese investment, for example, have played a large
role in Africas recent growth. As both
have declined, so have expectations for
the continents overall prospects. Growth
has also been fueled by a successful
diaspora bringing its skills back to the
continent or sending back remittances.
Similarly, developments within Africa
affect economies far away: African innovations in mobile banking have been
replicated in Asia, African designs can
186
be found in American fashion houses,

and African immigrants are altering
labor markets in Europe.
Finally, it is time to rethink what it
is thats worth measuring in the first
place. It is unmistakably clear that the
full measure of progress is not captured
by increases in GDP or by any statistical
yardstick used by Western economists.
At best, such metrics may be imperfect
proxies for improvements in the human
condition; at worst, they distract from
qualities and experiencespeace, health,
fulfillment, and so onthat also matter
and might be considered more indicative of genuine progress. A more useful
analysis would consider alternative
metrics derived from real experiences in
Africa. It would also be attentive to the
perspectives of diverse stakeholders
from entrepreneurs to laborers, farmers
to urban dwellers, refugees to landowners,
investors to the unemployed, ethnic
groups to diaspora communities, the
young to the old. With that approach, a
truer picture would at last emerge
not of a single Africa but of a continent
whose challenges and opportunities
are as diverse as the people who call
it home.
demand slowed, and the global economy

faltered for years.
This sequence of events revealed the
inadequacy of the two prevailing narraA History of Global
tives about consumption. For classical
Consumption
liberals, the accumulation of material
wealth reflects freedom of choice, the
bedrock of democracy and prosperity,
Victoria de Grazia
Trentmann writes. According to this
narrative, the United States victory in
the Cold War represented a triumph of
economic liberty and individual choice;
Empire of Things: How We Became a
so successful was the spread of consumer
World of Consumers, From the Fifteenth
capitalism that it inspired rising middle
Century to the Twenty-First
classes across the globe to stand up to
BY F RANK TRENTMANN. Harper,
authoritarian regimes. Social democrats
2016, 880 pp.
and progressives tell a different story.
For them, capitalism has fed false desires,
turning active, virtuous citizens into
he historian Frank Trentmann
has written the first total history passive, bored consumers. In this view,
of consumption. Empire of Things Trentmann writes, private, self-centered
hedonism has killed the public spirit.
is an original, ambitious account that
Trentmann rejects this dichotomy,
begins in the fifteenth century, spans
arguing that consuming is too diverse
the globe, and examines a wide range
and its history too rich to fit either
of regimes, from liberal democracies
to fascist dictatorships. The book could extreme model: complacent mass
hardly be more relevant: since the Great consumption or individual freedom.
Recession began in 2007, the world has Instead, he wants to take a step back
and offer readers not judgment but a
been mired in a global economic crisis
with the consumer at its core. As inequal- historical exploration of the birth and
ity soared in the years leading up to the evolution of consumption. Such an
approach offers helpful background for
crash, middle-class consumers, in the
evaluating contemporary phenomena:
absence of rising incomes, relied on
the globalization of manufacturing, the
credit to sustain their standards of
rise and spread of technology, and the
living. Sensing an opportunity, banks
hollowing out of the global middle class.
and other financial firms began selling
Empire of Things is divided into two
mortgages to people who could not
sections. The first is broadly chronoafford them. When the debt bubble
burst, millions lost their homes, pensions, logical, tracing consumer culture from
and hopes for a more prosperous future. the fifteenth century to the present day
European welfare states introduced harsh and examining various factors that have
transformed it. The second places current
austerity measures, Asian domestic
trends in historical contextinvestigating,
VICTORIA DE GRAZIA is Moore Collegiate
for example, how consumption has
Professor of History at Columbia University.
Having It All
July/August 2016
187
Victoria de Grazia
transformed religion, ethics, and generational identities. Trentmann manages

to convey both the everyday impact that
consumption has on peoples lives and
the sweeping changes it has undergone
over several centuries. He argues that
consumption should not be mistaken
for consumerism, where consumerism
is an ideological term often used to
characterize the accumulation of material
goods as wasteful or immoral. On the
contrary, consumption is a normal part
of human behavior, and consumer
cultures have developed across the globe.
Trentmann wants his readers to
understand the full history of consumption: not only what people were
consuming but also how states and social
policies interacted with consumers and
shaped their choices. His approach
allows readers to explore bigger questions
about how consumer culture has shaped
public attitudes toward life and death,
freedom, equality, and the well-being
of future generations.
Global trade, he argues, begot consumer

society. Although international commerce
had flourished ever since the advent of
the Silk Road in 200 BC, the 1400s
brought the opening of the Americas
and an uptick in trade, which paved the
way for the first consumer societies.
In Italy, China, the Netherlands, and
England, people acquired more things
than they had had before, Trentmann
writes. The spread of markets and the
division of labor that came with it enabled
growing numbers to buy items they
had not made themselves.
The United States was instrumental
in promoting consumption in the
twentieth century, especially during
the Cold War, when the figure of the
consumer-citizen came to occupy the
center of American culturein stark
contrast to the goods-poor comradeworker of the Soviet Union. But as
Trentmann shows, the United States
was never the only successful consumer
society. Some countries, such as Finland,
Germany, and Japan, have encouraged
POPULAR MISCONCEPTIONS
saving, rather than credit, to become
Three main takeaways emerge from
high-consumption societies, whereas
Trentmanns detailed narrative. First,
others, such as Denmark, France, and
contrary to the popular view, modern
Sweden, have allowed state expenditures
consumer culture did not originate in
in the form of pensions, health care,
the United States. Many commentators public education, and infrastructure to
speak of consumer society in the singular, boost consumer spending.
Trentmann writes, a tendency that harks
Second, Trentmann argues that
back to the early twentieth century, when material culture is not unique to liberal
the concept was associated with the
democracies. This position once again
United States and the American way
undermines the accepted wisdom, which
of life, with its then unrivalled level of
holds that the consumer is a fundamenmaterial comfort and consumer spending. tally Western figure. Observers often
In fact, what Trentmann calls mate- portray the emergence of conspicuous
rial life emerged as far back as the
consumption among Chinas new wealthy
fifteenth century, first in Renaissanceand middle classes as a novelty, somehow
era Italy and late-Ming-era China and
foreign to Chinese society (despite the
later in the Dutch Republic and England. fact that eighteenth-century Chinese
188
Having It All
Keeping up with the Joneses: at a Louis Vuitton store in Shanghai, September 2012
CAR L O S BAR R IA / R E U T E R S
entrepreneurs boasted of their fancy

watches, bejeweled tobacco holders,
and elaborate windscreens). As far back
as 1776, in The Wealth of Nations, the
economist Adam Smith portrayed the
residents of Canton as beset by scarcity.
The subsistence which they find there
is so scanty that they are eager to fish
up the nastiest garbage thrown overboard
from any European ship, he wrote. Had
he actually visited Canton, Smith might
have seen it for the bustling center of
global trade that it was.
Similar misconceptions have shaped
Western beliefs about other societies as
well, including the Soviet Union during
the Cold War and Islamic countries today.
In the 1980s, Trentmann notes, the Gulf
region welcomed high-end Western shops
such as Marks and Spencer; today, it is

a major player in the international market
for luxury goods. After the Iranian and
Saudi Arabian governments banned the
sale of American Barbie dolls, entrepreneurs began selling the Fulla doll,
adorned in traditional dress and a headscarf (but still equipped with a closetful
of party dresses). From socialist governments to fascist ones, all modern regimes
have found waysoften creative ones
to meet consumer demand.
HELP FROM THE PUBLIC HAND
Finally, Trentmann argues that consumption is a political phenomenon as much

as an economic one, owing equally to
changes in public policy and to markets.
In the early modern period, governments
July/August 2016
189
Victoria de Grazia
tended to restrict consumption to

preserve the social order, as in fourteenthcentury Europe, where many countries
began passing so-called sumptuary
laws, which dictated the kinds of items
people could buy. In Nuremberg, for
example, Trentmann notes that only
aristocrats, princes of the church,
and those in respected professions
were allowed to dress themselves in
silk, furs, and pearls, and only knights
and doctors of law could wear gold
threads. By the early twentieth century,
however, governments had become
instrumental in creating consumer
societies, by subsidizing goods, building infrastructure, and lowering
trade barriers.
Trentmann argues that consumer
societies would be much weaker without
help from the public hand. States
subsidize consumption in a number of
ways, including through social programs
and urban infrastructure for transportation and electricity. No surprise, then,
that the western European consumer
boom of the 1950s and 1960s coincided
with a massive expansion in governmentfunded housing, education, and health
care. Such services increase the
propensity to consume, Trentmann
writes, by reducing the need to save
for a rainy day.
Put simply, consumers are better
understood as social beings than individual ones. Their spending habits
owe not only to their disposable income
but also to the pressures of class and
culture. And governments have a
vested interest in how consumers
behave. In most nations before World
War I, leaders were oblivious to the
impact of consumer demand on the
national economy. In the wake of the
190
Great Depression, however, as governments recognized the importance of

spurring consumption to restoring
national prosperity, consumers became
more and more the objects of public
policy and legal protections.
THE FUTURE OF CONSUMPTION
Much of Empire of Things deals with

history, but Trentmann discusses a
particularly contemporary subject in
his epilogue: the relationship between
consumption and equality. The conventional wisdom says that inequality
stimulates competitive spendingthe
keeping up with the Joneses phenomenon. But Trentmann points out that
consumer societies have generally
thrived during times of greater equality.
He argues that after World War II, for
example, the development of welfare
states propelled mass consumption.
Whatever the precise causal link
between consumption and equality,
the growth of consumer societies has
certainly gone hand in hand with the
erosion of class distinctions. In the
seventeenth century, for example, global
commerce brought exotic goods such as
coffee, tea, porcelain, and precious cloth
within reach of the Western bourgeoisie, which allowed them to challenge
the power of the aristocracy as arbiters
of taste. In the twentieth century, the
arrival of transformative goods such
as the automobile, radio, and television did something similar, as companies began to market them not only
to the propertied few but also to
ordinary people.
Today, Trentmann writes, inequality
is a brake on growth in the West and
East, and so, too, on consumption.
Across the globe, low wages have caused
Having It All
demand to stay low, aggravating trade

imbalances and frightening investors.
In the West, states have been largely
unable to stave off declining incomes,
high youth unemployment, and
economic stagnation.
As the world enters a prolonged
period of slow growth, Trentmanns
history offers important lessons. The
most important is that the wealth of
nations depends on the wealth of their
consumers. It has taken terrible economic crises and political upheavals
to convince governments to place consumers at the heart of their economic
systemsa lesson that todays leaders
appear to have forgotten. Trentmann
also argues that societies have constantly
struggled to define what is a luxury and
what is a necessity and have had to
adapt as the former becomes the latter.
As cars transformed from an indulgence
to a necessity, for example, governments
stepped in to build roads and guarantee
cheap fuel. The Internet is undergoing
a similar transition now, and states will
have to figure out how to ensure equal
access to it.
Trentmanns book reveals that consumer societies have been surprisingly
mutable over time, as peoples tastes
and opinions have evolved. This lesson
offers hope for the future. Although
current levels of consumption have
wasted natural resources and spurred
climate change, there may yet be a
future for sustainable growth. At the
very least, societies will likely begin
to build environmental calculations

into public policyfor example, by
adjusting the prices of goods to reflect
the carbon embedded in them. Such
policies will allow people to gain a
sense of the consequences of their lifestyles for the planet, Trentmann
writes. Ultimately, consumer societies
must recognize that their actions affect
not only people in other societies but
also other species and the nonmaterial
world at large. That recognition should
be no more revolutionary than the one
that placed the consumer at the heart
of the global economic system.
Foreign Affairs (ISSN 00157120), July/August 2016, Volume 95, Number 4. Published six times annually (January, March, May, July,
September, November) at 58 East 68th Street, New York, NY 10065. Print subscriptions: U.S., $54.95; Canada, $66.95; other
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July/August 2016
191
How Well Off Is Israel?

Foreign Affairs Brain Trust
We asked dozens of experts whether they agreed or disagreed that Israel is
richer, stronger, and more secure today than at any other point in its history.
The results from those who responded are below:
Agree
Israel is richer and
stronger today than it ever
was; its likely more secure,
too, but that depends on
how you define security.
Israels wealth, its technological and military prowess, and the lack
of conventional competitors among its
neighbors are partially offset by the
extreme regional volatility.
Disagree
The unresolved conflict
with Palestinians, the
possibility of a collapse
in security cooperation
with the Palestinian
Authority, the existence
of a hostile entity in Gaza, and the
general regional turmoil mean that
Israels current state of relative security
is tenuous at best.
NATAN SACHS is a Fellow at the Center

for Middle East Policy at the Brookings
Institution.
MICHELE DUNNE is Director of and a

Senior Associate at the Carnegie Endowment
for International Peaces Middle East Program.
See the full responses at ForeignAffairs.com/StateofIsrael
This beautiful story continues on eniday.com
eniday

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T H E T RU T H A B O U T T R A D E A N D J O B S

JULY/AUGUST 2016 VOLUME 95 NUMBER 4

THE STRUGGLE FOR ISRAEL

Volume 95, Number 4

THE STRUGGLE FOR ISRAEL

A Conversation With Ayelet Shaked

A Conversation With Tzipi Livni

How Netanyahu Has Transformed the Nation

How to Make the Most of Uncertain Times

Arabs in Israel and the Struggle for Equal Rights

The IDF Adapts to New Threats

Why the Status Quo Is Sustainable

LEARN HOW YOU CAN ADVANCE YOUR CAREER

The Meaning of the 2016 Election

A Superior U.S. Grand Strategy

What Critics Get Wrong About the Global Economy

How to Handle Russia and Other Threats

The Kingdom and the Power

How to Grow the Countrys Labor Force

SHED SOME LIGHT

PHOTO BY: RAY LARSON

LOOK OUTWARD. INQUIRE WITHIN.

Human Work in the Robotic Future

Policy for the Age of Automation

How Washington Can Reverse the Tide

Private Capital for the Public Good

REVIEWS & RESPONSES

What Went Wrong and What Comes Next

Beyond Continental Caricatures

A History of Global Consumption

July/August 2016 Volume 95, Number 4

RICHARD N. COOPER, RICHARD FEINBERG, LAWRENCE D. FREEDMAN, G. JOHN IKENBERRY,

SUBSCRIP TION SERVICES:

Over the past two decades, FRANK-WALTER STEINMEIER has

THE STRUGGLE FOR ISRAEL

ts common knowledge that the

Israelat least the largely

A Conversation With Ayelet Shaked 2

The End of the Old Israel

Israel Among the Nations

Israels Second-Class Citizens

Israels Evolving Military

Israel and the Post-American

THE STRUGGLE FOR ISRAEL

Return to Table of Contents

yelet Shaked is a relative

This interview has been edited and condensed.

What kind of tools?

For example, it allows them, in specific

The fact that I was elected to my post

The main difference between the Jewish

ILIA YE FIMOVICH / G ET TY IMAG ES

One is the nomination of judges. Ive

bill, which the Knesset has tried to pass for

Niss as ipsunt eum, omniet

by funding specific NGOs that serve

Theres no inequality. According to the

By some countries, do you mean the

So the problem is not one of legal

Yes, sometimes. But the government is

Its not something weve really talked

The amount of attention this bill is

Mainly Europe. And by the way, its not

First of all, the badges arent part of